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Post-War International Currency

Volume 389: debated on Wednesday 12 May 1943

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I am glad that an early opportunity has been given to the Committee to discuss the important subject of an International Clearing Union. This subject, like that of the proposal for a United and Associated Nations Stabilisation Fund, has aroused great interest in this country, in America and in many parts of the world. It is indeed a subject of much moment, and I do not expect that this will be the only Debate on it before the policy of Governments is determined and general agreement, as we hope, is reached on the whole matter. In my introductory statement to-day I do not propose to deal with the many technical sides of a complicated subject. I propose rather to define the problem as the Government have seen it and to underline the salient features of a possible solution which appear in the White Paper recently made available to the House.

One of those papers is called the White Paper and the other the British Paper, or something of that kind. Perhaps the right hon. Gentleman will explain what he means?

I refer to our own British Paper, or something of that kind. Perhaps wish for some explanation of the procedure which has been adopted in relation to the preparation of this Paper, that is, the British White Paper, and of the events that preceded it. It may be remembered that in the Debate on 2nd February on the post-war economic position of the country I mentioned five ways of approach to post-war economic problems which we regard as valuable. They were—an orderly reduction of unnecessary barriers to the flow of goods between one country and another; the prevention of disastrous swings in the prices of raw materials" and primary products; the work of the International Labour Office; the direction of international investments for development; and, which is the subject of our Debate to-day, the approach to an international monetary mechanism which will serve the requirements of international trade. I thus endeavoured to indicate that the Government regard the problem of an international monetary mechanism not as an end in itself, not as something which by itself bring increased prosperity, but as providing a means for the development of international trade and full employment and thus of offering opportunities for the improvement of the standard of living in all countries.

In the statement which precedes the White Paper it is made clear that the Government are not committed to the principles or details of the scheme. Readers of it have been quick to note the "Keynes touch" in it. It is no secret that the noble Lord has had a big part in preparing the Paper, and I should like to take this opportunity of expressing my personal indebtedness to him. He would be, I think, the first to agree that he has been assisted by all the consultation which has taken place between officials of the various Departments. This does not mean that the Government have not given the subject and the proposals in this Paper very careful consideration. On the contrary, they believe that the principles of the scheme and what I might describe as its economic philosophy deserve serious and continued examination in all quarters. The matter is to some extent a technical one, and I have no doubt that there will be many developments as a result of further expert examination. Even if complete agreement among the experts is not obtainable, at any rate we may be able to obtain a closer definition of the grounds of disagreement, and it will then be for those ultimately concerned to proceed to obtain, if possible, a reconciliation of ideas and opinions.

The matter is obviously not one of domestic interest only. This Paper is one contribution to a considerable international problem, and the views and judgments of other nations will be essential, for without their co-operation no international scheme of this kind will be of any lasting value. It was on these grounds that the Government thought it would be for the general convenience if this expert Paper were produced and published to the world for consideration on its merits.

The right hon. Gentleman told us that Keynes had consultation with various people. Can he say whether he had any consultation with Montagu Norman?

I am going to explain in detail in a moment what those consultations were. I think the Committee will have properly assumed that when I spoke on 2nd February about the desirability of an international monetary mechanism I was not just mentioning something that ought to be planned, but was referring to a question which was then under careful consideration. In fact, the outline and many of the details of this scheme have been in preparation during many months, and have been under frequent revision. Moreover, in agreement with the United States Government, responsible British officials have discussed this matter in an informal and exploratory way with experts of the United States Government, who have throughout displayed the same considerable technical interest in the problem and have similar objectives in their minds, though in certain aspects their way of approach may not be the same as ours.

I want to make one point clear immediately. This is a British plan, but that does not mean that we are putting the flag on it and will view any criticism of it as derogatory to national prestige. It will indeed be calamitous for any attempts to shape an international economic order if a country which displays any initiative in making detailed suggestions for such an order is regarded as attaching feelings of national pride to its suggestions. Of course this is a British plan, for it is derived from British experience of the banking system and of over a century of international trading and the clearing of international balances. I hope, however, that it will not be received anywhere as a plan drawn solely or mainly in British interests. Everybody concerned in it has genuinely attempted to see an international problem in an international way and to produce something which could be made into an international solution. The justification and reasons for this are plain—perhaps more than any other country we depend for our economic well-being upon a world peace and a world in good order. I mention this because I have observed in the Press both of this country and of the United States that some attention has been paid to the question of voting and the preponderance of votes, to see who will count most in a division in any such scheme. May I say here and now, and quite categorically, that the particular voting rights outlined in the Clearing Union are of secondary significance? A scheme of this kind, which, if it came into being, would have daily contact with the business of many countries, cannot work through an international body, whose first preoccupation is to count heads on every issue of policy, or to attempt to create, or to weigh opposing groups. Something on the lines of the American proposal for voting quotas might suit the Clearing Union plan equally well, although, of course, both we and the United States must remember that in an international organisation we have the rights of other nations to consider on the same basis as our own, and we are aiming not at a voting formula, but at the common-sense working of the participating countries.

We have also had the good fortune to have had this Paper discussed, again in an exploratory and non-committal way, by officials of the Dominions Governments and of the Government of India. This was not with the desire of creating a common front, though I see no particular harm for the post-war world, if the British Commonwealth of Nations has a common point of view which does not exclude the fullest consideration of the points of views of others. But anybody who looks closely at the economic position of the Dominions, or of India, or of our Colonies, knows that they do not all have the same problems, nor are their problems necessarily the same as ours, and these discussions which we had with the Dominions were, in fact extraordinarily impartial, the discussions of men who were examining a technical problem rather than a political one. Of course economic policy cannot be separated from political policy, but before we make up our minds on what our political policy shall be, obviously we should first consider economic questions and implications.

Can we take it then, that the Dominions Governments are, in principle, in support of the Keynes plan?

No, Sir, the Dominions Governments are in exactly the same position as our own. This matter has been dealt with on the official level, and this has merely been put forward on the same basis as that on which the British Government are putting forward this Paper to-day.

I will now turn to the explanation of the post-war problem as we see it in relation to this question of monetary mechanism. I have seen criticisms of the Clearing Union which suggest that this is all rather fanciful, that it is planning in the worst sense and that there was not much wrong with the situation that existed before the war. I cannot, myself, imagine a blinder attitude to the economic realities of the world between the end of the last war and the outbreak of this. Were the 1920's so satisfactory to this country and to every country, that we want to go completely back to them, or was the abounding prosperity of the United States about 1927 and 1928, so strong that it was free from catastrophe in 1929, 1930, and 1931? Was the economic position of Europe wholly healthy, or is it not more likely that the growth of the evil power of Hitler was nourished by the unstable economic world of those times? Of course, international trade was being done before the Clearing Union was thought of, and, of course, goods were moving from one country to another, for no peoples are prepared to stop work and starve. But do not the underlying facts suggest that international trade was being gravely distorted, or even slowly strangled, by commercial policies and exchange devices adopted by each nation in turn as defensive necessities?

If the world has not learned its lesson, we may have to go back to such a system, and no doubt, again, we could make it work somehow. The British Common-wealth has resources and natural trade affiliations on which it could begin and there are other nations whose economy is complementary to our own and who would wish and be willing to work in with us, but we ought not to begin by thinking that this is our best policy. We have our special responsibilities to the British Commonwealth of Nations, and we have responsibilities to Europe, as has been indicated by my right hon. Friends the Prime Minister and the Foreign Secretary, and we have also a responsibility to the whole framework of the world economic order. I suggest therefore that we should take it as our present policy for the world after this war, that we want to see the goods of each country exchanged as freely as possible, that we want the immense technical developments which are being stimulated by the war to produce a harvest for peace, that we want the unity of the world to be more than a pious phrase. When we speak of the need for full employment in this country we must not at any time forget how much that aim is linked up with good employment for our export industries. It was one of the complicated problems of the years between the wars that we had at times relatively high prosperity and economic development over the country as a whole, accompanied by heavy and continuous unemployment in our export industries.

I have spoken deliberately of the movement of goods rather than of the movement of money, for any international monetary scheme must, as I have said, serve the interests of international trade, and its success or failure will be conditioned not by the technical skill of the monetary mechanism, but by the sanity of the policy which we shall adopt in international commerce. No monetary mechanism, no system of regional grouping, no adoption of monetary terms such as "bancor" or "unitas", will be of the slightest use in helping goods, services and the results of inventive ability to move freely round the world if simultaneously, any nation erects unnecessary barriers to check their movement and flow. If we adopt this policy, it would appear that we should aim at three things—first, to provide a mechanism by which international balances, the sums of the debits and credits incurred by all traders in each country, on account of their international transactions, should be freely cleared; second, to provide that the exchanges, which represent the terms on which clearance is effected, should be reasonably stable so that goods and services can be moved on the international market with knowledge of the value which they will command; thirdly, and in order particularly to meet the difficulties of the early period after the war, that countries whose economy has been gravely dislocated or damaged by the war, should have some temporary international monetary facilities to enable them to start up into national trading without undue delay.

In the face of these problems the Clearing Union Paper proposes a possible solution which, in its essence, is simple. It rests on certain principles: that all the participating countries should agree to pass their payments of international balances through a Clearing Union; that for this purpose they should use a unit of account called "bancor," which is stated in terms of gold and to which the par value of the exchange of each country should also be related; and that, in order to enable international economy to start up, each of the participating countries should have an international overdraft based upon the value of its foreign trade over a period and upon such other factors as are appropriate for inclusion in such an appreciation. Although these principles are related to each other and, indeed, the scheme must be read as a whole, it may be convenient if I deal separately with each of them at this stage. In the first place, let me remove, if I can, some misunderstandings about the meaning of the Clearing Union and its mechanism. In the years immediately before the war Germany had established clearing arrangements with a number of countries around its frontiers which, so far as I understand 'them, involved the complete centralisation of all commercial transactions between the trader in Germany and the trader in any other country, and this led to a complicated system of blocked balances and to a good deal of economic pressure in the special interests of German economy.

The existence of this system has induced some critics of the Clearing Union to imagine that it means the establishment in this country and in all participating countries, of a similar system, by which each trader who wishes to obtain foreign exchange for the purchase of goods from abroad must go to a central office and will not know whether he can proceed with the transaction until the central office has considered whether foreign exchange for that transaction and that country is to be made available. This is not contemplated in any way by the Clearing Union Paper. So far as the individual trader is concerned, he will not consciously come into touch with the Clearing Union at all. He will go as usual to his own bank to make the necessary arrangements, and his own bank will, in the ordinary way, obtain for him the necessary foreign exchange. I will deal in a moment with the problems of the rates of exchange and of exchange control, but I want to make it clear now that the scheme does not impose upon the ordinary daily business of any country any new and complicated piece of central mechanism.

But in the working of international trade there remains the clearance of international balances, the account struck as the sum of all the individual transactions that take place over each of the exchanges. In the ordinary way these international balances, so far as they were not smoothed out by credit operations, were disposed of periodically by the central monetary institutions of each country selling or buying gold, and during a period of reasonably stable exchanges and freedom from excessive bilateral agreements, or excrescences like the German+ clearing system immediately before the war, the system worked well enough. The aim of the Clearing Union is to restore that system in the freest possible way, so as to enable the trader to buy from any country what he desires to import and to obtain payment from any country to which he wishes to sell. For these reasons it is proposed that all international balances which are left after individual transactions have been "married" or cancelled out shall be cleared periodically between the central monetary authorities through an International Clearing Union. It is in this respect that the scheme has one of its analogies with the domestic banking system. A trader banking with, say, Lloyds' Bank, pays his supplier with a cheque on that bank. His supplier deals with, shall we say, Barclay's, and through the Bankers' Clearing House the cheques are cleared and the accounts 'of the two traders are thus related. The Clearing Union is in this respect a generalisation to the whole of international trading of the "shape and understood principles of domestic banking. At this stage, therefore, I would point out to the Committee that the Clearing Union is but a piece of international monetary mechanism for convenient purposes.

Let us examine the question of the rates of exchange. I think it will be agreed in all quarters of the Committee that if international trade is to proceed and to expand, it can only do so on the basis of the relative stability of international exchange rates, for it is only such stability which enables a trader to know the value of what he will acquire in the form of international purchasing-power by the sale of his goods abroad. Exchange rates, however, cannot be settled immutably, especially when we realise how difficult it will be for the world to find a real equilibrium on which it can settle down after the war. But what is contemplated is that exchange rates should be fixed by agreement and should not be altered except by similar agreement. This is a principle which, I may remind my hon. Friends, formed part of the important Tripartite Agreement between the United States, France and ourselves signed some years ago. I know that in some quarters it is felt that our foreign trade will be unnecessarily tied up if we make an agreement about exchange rates. The depreciation of exchange rates means, of course, that on the short view you have an advantage over your competitors selling the same goods because you have offered to sell goods at a cheaper rate. That only involves, I would point out, a competitive process in depreciation, and this country has an especial interest in the stability of exchanges. It must not over value the pound, as the phrase is, because it will have greater difficulty in selling its exports, but if it under-values the pound it may have to pay more for the goods which it imports or may have to restrict its imports.

Therefore, in our own interest and, as we see it, very definitely in the interests of good international relations, and an expanding international trade, we believe it is essential to have an agreement about exchange rates. The Clearing Union proposes this as a fundamental of all post-war trading, that the participating countries should agree to keep their exchanges stable, in the sense that they do not alter them except on certain general Conditions agreed beforehand with the other interested nations. To enable the exchanges to be stated in a simple way, the exchange values are fixed by agreement between the various countries, and each of the exchanges is then related to the unit of international account, which is called bancor, and that unit of account is, in turn, related to the value of gold, but not unalterably. As I have indicated, the problem of finding the appropriate exchange relationship after the war will be difficult, and there will have to be a certain amount of trial and error, which by agreement, would alter the exchange rates and consequently affect the relationship of individual currencies to gold.

I must now say something about that controversial metal, gold. Mankind has for centuries believed that gold is a real thing and has a real value, and it would be foolish and useless to attempt to ignore this. All the major trading countries have an instinctive respect for gold. The greatest producing country in the world has acquired a very large stock of gold. The British Commonwealth of Nations is the largest producer of gold, and Russia is also an increasing producer of gold, which it uses for monetary purposes. Therefore, we should be acting foolishly if we attempted to separate the unit of international trading account from gold. On the other hand, especially after the dislocation of the war, we do not think that the rate of progress of international trading of each country should be determined entirely by the stocks of gold it possesses and is able to use for final settlement of international balances; nor do we believe it to be wise that the expansion of the trade of the world should be conditioned by the rate of expansion in gold production, which is to some extent affected by matters not directly concerned with the need of the world for gold for international trading purposes.

What the clearing union does, therefore, is to say that, for the purposes of settling international balances, bancor should be accepted as the equivalent of gold by all the countries participating in the Clearing Union. The Union must provide bancor in exchange for gold; but a member State is not entitled to demand gold from the Union for bancor. Thus, in more technical language, bancor is 'defined in terms of a weight of gold, and since the international currencies of member States are given a definite exchange value in terms of bancor, it follows that each country would have a defined gold content for its currency which would be its official buying price for gold above which it must not pay. As each member State is entitled to obtain a bancor credit by paying in gold to its clearing account, this secures a steady purchaser for the output of the gold-producing countries and for countries holding a large reserve of gold. Thus, I would point out, the position of producers and holders of gold is not affected adversely; on the contrary, it is improved, because they are provided with a secure outlet for any gold they wish to dispose of, which, in the absence of the Clearing Union, they would not have.

Under the Clearing Union, international bancor credit is not limited by the physical amount of gold which each country possesses at the time when the Union is started up, nor is it limited as the scheme operates by the rise or fall of the amounts of gold held. The credit is based on what I suggest is the truer reality, the volume of goods and services disposed of by each country on international account. I have mentioned that no country is entitled to demand gold from the Clearing Union against its balance of bancor. Bancor is available only for transfer to another clearing account within the Union, and therefore there is no need to require the Union to sell gold for bancor, and, as the Clearing Union Paper points out, this means that there is a one-way convertibility between gold and bancor.

Having thus briefly described the mechanism of the Clearing Union and the principles by which exchange rates are fixed and related, both to bancor and to gold, I would come to what I believe hon. Members will agree is a bold and ingenious proposal for the establishment for each participating country of an international credit based upon the value of its international trade. In what I am afraid in these days must be familiar parlance, they represent overdraft facilities, but without the pledge of collateral security. This may at first sight seem curious, but let us examine how the proposal would work out. The actual proposal in the Clearing Union is that the credit should represent, say, 75 per cent of the value of each country's exports and imports on the average of the three pre-war years. I think it is possible that, upon examination, it might be found that such a figure was somewhat too high for practical necessities. On the figures published by the League of Nations, the formula in the Clearing Union paper would produce a theoretical aggregate for all the quotas, on the assumption that all the United Nations join the Clearing Union, of about *£25,000,000,000. This sum, however, is entirely misleading as an indication of the actual scale of operations. To begin with, it is impossible that all the countries should simultaneously be employing their overdraft facilities, since there must be creditor countries, having in the aggregate an amount of deposit exactly equal to the advances made to the debtor countries. Apart from that, it would be most unusual for a country to use its overdraft facilities up to the hilt. A debtor country can only employ more than half its quota exceptionally and on stringent conditions. In actual fact the aggregate of the deposits and advances respectively in the Clearing Union will be governed, not by the theoretical maxima, but by the sum actually required to correct the want of balance of trade in the participating countries. No creditor country will have a deposit larger than the favourable balance which it deliberately does not cover in any other way.

I have heard it argued that the actual aggregate sums outstanding might prove to be quite modest. Nevertheless, there has to be a theoretical maximum for each member, sufficient to satisfy the requirements of the weakest members. Let me, in this connection, remind the House again of the analogy with ordinary banking. If a bank were asked, what is the maximum overdraft it would allow to each of its customers with good credit, and then were to add up those figures, the figures would, of course, amount to many times the actual deposits of the bank. In fact, its overdrafts could never exceed its deposits, and at any given time only a minority of its customers would be
* [see OFFICIAL REPORT, 25th May, 1943. col. 1400.]
making use of the overdraft. Moreover, the more one of them uses its overdraft, the less that will be necessary for all the others. I do not say that some further limitations upon the theoretical maximum may not be advisable, and that is a matter for discussion. But in the end it is the degree of want of balance in the trade between countries which will settle the matter, and we do not want to hamper ourselves by adopting maxima which will be inadequate to meet the position in particular cases. Obviously, there must be some discipline upon countries with an excessive overdraft, just as there is, regretfully, the need for an uncomfortable interview with the bank manager in the case of domestic banking, and the scheme provides that the governing board of the Clearing Union will have fairly substantial powers for putting pressure upon countries whose overdraft is increasing beyond what is regarded as a reasonable initial sum.

I do not think we need go into that point to-day. I need not elaborate the various methods of discipline suggested, for they are in the paper, and they require and deserve careful study. But at this stage the paper, in a signal way, calls attention to a factor in international trade which is too often neglected. An obdurate debtor may weaken international trade by creating uncertainty whether its debts will be paid. But the position of the persistent creditor is also deserving of study. A persistent creditor can help to maintain equilibrium by more freely admitting goods and services to be imported in exchange for the goods and services which it has exported, and by using the credit balances that it may have created for investment abroad. It is not easy to see in advance who will be the creditor countries over a period of international account. I confidently hope that, in the course of time, we shall again become a creditor country, and I trust that we shall than he mindful of the responsibility to the world that this involves, as we were in the l9th century.

The Clearing Union proposes that if a country has a debit balance in excess of a certain formula, it should pay interest on that excess, but it also proposes that the same international discipline shall be applied to the creditor country whose credit exceeds the formula. I am sure all Members will realise that while this latter proposal is not an essential part of the scheme itself, it is a logical conception and is a way of emphasising, for all the countries concerned, the responsibilities of an international creditor, in addition to the responsibility that falls upon an international debtor,

There are one or two other points I must mention. First, the Clearing Union makes provision for groups of countries linked to a common financial centre, such as the existing sterling area or groups which may come into existence in future, for instance, in North or South America, or those groupings of Eastern European States which are now under active discussion. There is nothing in the Clearing Union proposal which would interfere with the discretion of particular countries to form or to maintain such groups. Secondly, I must emphasise that the Clearing Union is intended primarily for clearing balances on current account. It is not expected to be a source of finance for international investment on long-term account. The considerations raised by that problem are rather different. They will need to be related, of course, to the progress of the current accounts of the various countries, but our general view is, and I think the same view is held in the United States, that it is more convenient to examine the two problems separately.

Similarly, the scheme is designed only for what it is intended to do, to deal with the monetary mechanism which will facilitate international trade. As I said at the beginning of my statement, it does not deal with the commercial policies which must underlie healthy international trade, nor with such important questions as schemes for eliminating excessive short-term fluctuations in the prices of primary products, nor does it deal with the financial problems involved in the provision of relief which will be necessary in the immediate period after the war. All that need be said upon these matters in this connection is that if such an international monetary mechanism were established it would be a convenient mechanism through which some of the finance to be approved for such schemes could pass. But we must be very careful not to waterlog this scheme for handling current trading transactions with problems not directly related to ordinary current trade. I must now turn just for a moment to the Governing Board, and its powers. There may be some Members of the House who will say that if the powers of the Governing Board are exercised to the full, then the control of the economic life of all the participating countries is in effect entrusted to that Board. That is, I suggest, an exaggerated view of the position. If we mean anything at all by international agreements, every country which enters such an agreement must accept the discipline or code of behaviour or whatever it is termed which is explicit in that agreement. If we negotiate a commercial agreement with any country, both countries accept limitations to their sovereign right to do what they like which are contained in that treaty. The Governing Board is to be a Board representing the Governments of the participating countries. Those Governments will have agreed in advance on a code of principles to give effect by international co-operation to methods of preserving equilibrium and avoiding the necessity for deflation and restrictive policies. They will thus preserve the power of controlling their own economic life and to guide it in the path of full employment and prosperity. To resort to economic warfare between the nations, forcing on them the need for safeguards and restrictions, would, in fact, interfere with the freedom of each country to control its economic life to the ends which it desires. An agreed code of discipline gives the freedom to prosper while its absence often gives only a freedom to suffer. We must approach such a matter with what I would describe as realistic faith, not expecting perfection but not always expecting disaster.

Finally, in relation to the Clearing Union, I must mention the question of exchange control. As I have told the House on a previous occasion, it will, in ray judgment, be necessary for this country at least, and probably for a number of other countries, to control dealings in foreign exchange after the war for a period sufficient to ensure that' foreign exchange resources are devoted primarily to imports which this country requires in the national interest, and probably for a longer period, among other things, to prevent speculative movement of capital on rumours or scares. The scheme contemplates that exchanges shall be held stable against each other by agreement, and to the extent that this requires some control of exchange dealings by the central monetary institutions of each country, exchange control is a feature of the scheme. But the scheme leaves each country free to a large extent to decide on its own policy in this matter, and does not require elaborate exchange control for all participating countries if their own domestic situation does not appear to them to justify it. This must, of course, be subject to the proviso that such freedom as is given to open market transactions across the exchange does not impair the stability of the exchange rates, fixed by agreement and alterable by agreement, or allow speculative flights of capital from one country to another. But nothing in this scheme means that exchange controls need be paralysing to international trade, as they have been in more than one instance between the wars. On the contrary, the scheme allows the maximum flexibility of exchange transactions within the limits imposed by agreed exchange rates. It is not contractionist but on the contrary expansionist for world trade; but if the discipline imposed in the scheme is accepted, that expansionism will not take the form of dangerous inflation.

If the House will bear with me for one minute or two more, I think I must say a word or two about the differences between the scheme drawn up by officials of the United States Treasury and our own White Paper. May I say in the first instance that I think it would be entirely wrong to emphasise the differences? It seems to me, and it is a fact which I welcome most cordially, that the United States experts started with similar objectives, and in a number of ways, although their technique is somewhat different from that suggested in the Clearing Union Paper, the American scheme has many underlying similarities. It is, I believe, a hopeful matter for the world that these two great trading countries should be thinking like this. The American scheme, it is true, approaches the problem in rather a different way. It assumes that countries will have started up trade and will be creating their international balances of debit and credit, but that for a time, and inevitably after the dislocation of the war, some countries may have need of an accommodation on international account to help them with their financial balances. It contemplates, therefore, the establishment of an International Exchange Stabilisation Fund, or, as we call it, an equalisation account, which will be used to come to the help of a country which is in temporary difficulties. This Stabilisation Fund is created out of subscribed capital, the capital consisting of a relatively small proportion of gold, with supplies of local currency and Government securities. On the basis of that subscribed capital a fund is brought into use through the governing authority of the Stabilisation Fund.

The details of the formula presented in the American paper are not at present defined, and we therefore cannot yet see what would be the amount of the facilities at the disposal of each of the countries which participate in the fund. There would appear to be differences of approach between this scheme and the international credit account to be opened under the Clearing Union, but though the method of approach is different the objectives and principles, and to a large extent the practical results are similar. Points like this can no doubt be best elucidated by careful discussion between the United States and ourselves and the other United Nations. There is another difference—and this may prove to be a radical one—that the international unit of account, which is called unitas, is not an independent world currency, but a unit of gold value; therefore, it is convertible into gold both ways. This means that gold may purchase unitas, and that any holder of unitas may require gold in place of it at the rate established by the fund. The American plan appears also to hold rates of exchange which are fixed initially more closely than the Clearing Union, but I should judge that this also is a matter which requires further examination. On the face of it, the scheme appears to relate exchanges and balances more closely to gold than does the Clearing Union. The Stabilisation Fund also contemplates a board of directors appointed by the participating Governments, and entrusts these directors with very considerable powers, including that of operating in the international market in the sale and purchase of securities, a proposal which is not in the Clearing Union. There are a number of other matters in which the way of approach in the Stabilisation Fund differs from the Clearing Union, but many of them, I think, are technical differences which are not of particular significance.

I began my statement by saying that I did not think that this would be our only Debate on this very complicated subject. We are obviously dealing with a matter on which the maximum of international co-operation is necessary, if not only the principles but the whole working of the scheme are to be satisfactory. Novel and far-reaching arrangements such as we are now discussing cannot voc carried into operation except with a large measure of general agreement and after close expert examination. It seems to me right, therefore, that we should not have attempted to be dogmatic about our ideas, and that is why at this stage we have not sought to reduce them and others to a single alternative until we have had the benefit of a full discussion over as wide a field as possible. This Debate is one of the first stages in such discussions. Ultimately we shall have a conference of Finance Ministers. It is yet too early to make any definite statement on that, for clearly a considerable measure of agreement must be evinced before the calling of such a conference would be wise. The matter, as I have stated, is still at a technical level, and the form which further expert consideration should take must largely be settled by convenience. I shall, of course, continue to keep in close touch with Mr. Secretary Morganthau as the matter proceeds and develops.

I thank the Committee for the very patient attention they have given me. I trust they will not think I have unduly trespassed on their patience, but it was necessary for a broad statement to be made. It is in that sense that I commend the scheme to the Committee, not for its immediate acceptance, but, in the words of the statement which precedes the White Paper:
"as a basis for discussion, criticism and constructive amendment, together with similar plans having similar objectives which may be prepared by experts of other Governments."
I would conclude with this: We can all agree that it is in the interest of the world and its future prosperity and progress that agreement should be arrived at between the nations on this vital matter in economic affairs, and I believe myself that with understanding and good-will the goal will be successfully reached.

May I put one question? [Interruption.] It is fundamental; it will not involve discussion.

I never rose in this House with a greater sense of responsibility than I do to-day, for I realise that mine will be the first unofficial voice to discuss this grave subject in this popular Assembly. This is indeed an immense subject; immense in its ramifications and intricacy, immense in its pregnancy for good or ill in the, postwar world. I heartily welcome this Debate; it is essential that the House of Commons should be in at this early stage of the discussion. But, as the Chancellor of the Exchequer has already indicated, a single day cannot possibly exhaust the subject; we shall require much further consideration before we are ready to commit this country to the details of any scheme which may make or mar the future industrial life of our own nation and of the world as a whole.

Before, therefore, I come to the precise proposals which are being laid before us, I desire to make certain preliminary observations, designed to put them in their right perspective. I shall begin with two statements which I think to-day command general acceptance. The first is that we cannot put the new wine of 20th Century economy into the old bottles of 19th Century finance. The second is that there can be no self-regulating mechanism. Commodity prices do not remain at a constant level, international exchanges do not remain stable, the quantum of physical investment does not equilibriate with the quantum of aggregate saving, without continuous, wise, unremitting watchfulness and direction. That brings me straight to the questions. Who is to be entrusted in future with this direction, and on what principles is it to be exercised? In the 19th Century it was a despotism, and the despot—the benevolent despot, we should like to think—was Britain, acting through the machinery of the Bank of England and the City of London. This despotism was destroyed in the last war. During the inter-war years we had anarchy in finance and the law of the jungle in economics and industry, as I said in a recent speech in this House. If these are to be replaced after this war by an ordered system there must be some government of it. Is it to be once again a despotism, and, if so, who is to be the despot? Some people may fondly imagine that it would again be this country. I beg them to dismiss that dream. However great may be our prestige, however strong our tradition, how- ever wise our technique, we shall not have the resources when the war is over to enable us to fill that role. It may not be generally recognised, but we shall enter upon the peace not merely no longer a creditor nation, but heavily in debt to other nations—in fact, the principal debtor nation in the world. No; if there is to be a despot, it will not be Britain. It is much more likely to be the United States of America. If I may say so without offence, that great nation has much to learn before it can successfully and benevolently maintain the hegemony of the financial world.

If not a despotism, what shall it be? Shall it be a condominium? Shall the United States and the British Empire combine to rule the financial world? We are now out of dreamland, and facing a quite practicable possibility. Many arguments can be adduced in favour of this form of financial government. Many people on both sides of the Atlantic may rejoice in the thought that it may become an accomplished fact. I am not of their number. I see many dangers in an attempt by the Anglo-Saxon bloc to dominate the financial and economic life of the rest of the world. It would be certain to cause resentment, and every failure of a people to secure well-being in the future would be laid at our door.

Therefore, I reject this solution and give my vote for democracy—that is to say, for a system which each nation is free to enter or to stay out of, and in which each member nation has a legitimate share of control of the instrument by which it and the others are to be governed or directed. A democracy is, of course, much the most difficult system to originate and to work. It is none the less, in my view, the best. On paper, both the schemes which we are discussing to-day conform to this democratic principle. In the British plan it is specifically stated at the bottom of page 3, that:
"The management of the institution must be genuinely international without preponderant power of veto or enforcement to any country or group: and the rights and privileges of the smaller countries must be safeguarded."
In the American plan the idea is also implied in the quota of votes. But I cannot help wondering how far, in practice, either scheme is going to work out in this way. Certainly, in the American plan the combined effect of the four-fifths rule and the one-quarter quota to be assigned to the United States—and probably, I should imagine, something like the same proportion assigned to the British Empire—would undoubtedly give, both to America on the one hand and to the British Empire on the other, a permanent right of veto on many important decisions. Of course it is not only proper but even essential that great nations should have a bigger voice than small ones. I myself should be the last to suggest that our own country, with its wide knowledge and experience and its immense commitments, should put itself at the mercy of ignorant or unfriendly decisions forced upon it by the combined vote of nations with little at stake. But a reality of democracy must be maintained if countries are to be asked to surrender a part of their sovereignty and to accept decisions of the directorate as binding upon themselves. The necessity for this increases with the degree of control that it is proposed to exert over member States, and with the character of the sanctions which are suggested as a means of enforcing it.

This brings me to a discussion of these subjects. It is quite clear from a perusal of the two schemes that there is considerable divergence between them on these matters. The American plan, as is perhaps natural with a country which has in its own governance a written and exact Constitution, is much more precise and binding. Members on entry are enjoined to conform to a code of behaviour—not, it is true, a decalogue, but a heptalogue, of financial commandments. Once in, they cannot break away except by giving two years' notice. They cannot depreciate their rate of exchange except with permission. They may be instructed in matters of domestic policy. The British plan is more flexible, and to that extent more to my liking. Twelve months' notice of withdrawal is sufficient. A country is free to make on its own initiative at least one cut of five per cent. in the exchange value of its currency. Countries can be advised, but not instructed, in domestic affairs. A good deal of the plan is left to be filled in with later experience. It is frankly faced that the obligations must be, in the words of the paper:
"voluntary so long as they last and terminable when they have become irksome,"
because
"if they are free to escape from its provisions if necessary they may be the more willing to go on accepting them."
In my view, no moral obloquy ought to attach to such withdrawal, but I agree that if many member States were to take advantage of their freedom, the plan would break down.

In another important respect also, the American plan is more rigid. It proposes in fact a full return to the gold standard, from which we in 1931 were compelled to break free, to be followed by the United States, under great stress, a few years later. I hoped that we had all learnt the lesson from those events that shackles bite into and mortify the flesh of international trade, even when they are shackles of gold. I certainly could never support any such proposals. In my view, even the British plan goes further in the direction of restoring gold than I should think wise. I admit, however, that there are in it, two safeguards. The first is the specific suggestion that the gold equivalent of the bancor should be subject to modification. I am not sure how much this provision is worth. The other is, in my opinion, more important. It is that the whole scheme is admittedly, and intentionally, expansionist. The credit to be created by the clearing union is a net addition to the world's credit, a kind of fiduciary issue, as it were. This credit is not fixed in amount, but is capable of expansion, as the international trade of countries increases and with it their quota in future years. I find no such provision in the American plan, which would seem, by withdrawing gold and currency from member States at the outset, to carry with it a degree of deflation.

Would either of these schemes work in practice? To answer this, let us first examine the physical realities of the postwar world, which must necessarily lie behind any financial facade—a matter to which the Chancellor of the Exchequer, if I may say so, very properly and cogently referred. The basis of all international economic relationship is mutual trade and services rendered. We all recognise, I hope, that in the purely domestic field there is an optimum production for a country at any one time, and that while a bad national financial system may reduce the national output below that optimum, no financial system, however good, can raise it above it. In the same way, the best that can be hoped for from an international financial system is that it will not hinder an optimum world output of goods and services, and will facilitate their distribution and exchange. No financial system will work unless nations bring their economic life into equilibrium. Neither the American plan nor 'the British plan, nor any substitute for these, will of itself achieve this. It must be realised, too, that neither the union nor the fund is designed to provide long-term money. In terms of the Russian system, they are like the Prom-bank and not the Gosbank, or, in perhaps a more familiar illustration, they are like the joint stock banks in this country as distinct from their counterparts in many Continental countries, where they supply long-term capital. Both the Union and the American counterpart are designed only to enable nations to even-out their short-term requirements. Therefore, a member of the system must be free to set its house in order at all times and to regulate its own affairs, including the exchange control of which the Chancellor has already spoken, in which there appears to be a difference between the two schemes. This is a very large subject, into which I do not propose to enter further beyond that passing remark, and to say that I agree with a great deal of what the Chancellor said with regard to it.

If a country is getting into difficulties, it has two courses open to it. One is to adjust the relationship between its exports and imports, and one way to do this might be the alteration of its exchange rates. The other is to convert its short-term obligations into long-term, a kind of funding operation, as the Chancellor will appreciate, which can only be put through if it can find lenders who will have confidence in it and in the obligations created. In passing, perhaps I may remark that it is this confidence which war destroys, and not only war, but some of the experiences of the prewar years, and it will be that confidence which will be one of the most difficult things, far more difficult than material resources, to build up after the war is over.

But apart from the duties of what may be called the debtor States, we must all recognise the obligation of creditor coun- tries to make it easy for those who owe them money to pay their debt, and it is in that regard that I think the British plan makes ingenious proposals. It was Irving Fisher, the great American economist, who pointed out that some time in the inter-war years, the more that was paid off the debt to America, the larger in terms of real value did the remaining debt become, and it is perfectly clear that, if the world is to prosper and States are to remain in equilibrium, creditors must be willing to accept payment of the interest on their debt, and the capital on their debt, in so far as it is paid off, in terms of goods and not merely in specie.

Does not the convertibility of commodities into gold constitute a direct inducement for the creditor nation to continue the practice of refusing to accept goods and of insisting on gold?

The hon. Member is entitled to put his own interpretation upon it, but I would rather make my own statement in my own way. I was saying that the creditor countries must accept payment of the interest and capital of the obligations to them in terms of goods and not confine it to specie. I am very glad to see that the British plan, in emphasising this matter, does require that creditors should pay attention to these facts as well as debtor countries.

Provided all this is understood, and provided nations are prepared to co-operate for their mutual economic benefit, I see no reason why they should not be able to work a central financial institution, and I regard the two plans presented to us as an invaluable contribution towards the creation of such a scheme. I share with the Chancellor the sense of deep gratitude that we owe to those on both sides of the Atlantic who have got out for us these blue prints as draft proposals. The American Government, whose generous contribution in the nature of Lend-Lease has already put us under a great obligation, has now to be thanked most heartily for getting its Treasury to produce this scheme, and the remarks to which the Chancellor has already given expression with regard to our own Treasury, and particularly Lord Keynes, certainly find an echo in my heart. The highest tribute that we in this House can pay to those who have put us under that obligation is that we should criticise these schemes, and criticise them frankly, with a view to reaching ultimately an acceptable solution, differing, it may be, substantially from either of them. I beg, therefore, those who are concerned in this matter—and I think the Chancellor of the Exchequer will probably largely agree with me—in the first place, that in no way will they resent criticism; in the second place, that they will not attempt to arrive at a final draft by haggling over the details of the existing drafts. It is not a question of one nation against another. No nation stands to gain in the long run by imposing a scheme which threatens loss or entanglement on other nations. And, thirdly, not to come to any early final decision.

I do not want to see the emergence of a cut-and-dried scheme which will be presented to other nations on a take-it-or-leave-it basis. If it is to be a success, it must meet with individual acceptance and deal with the individual requirements and susceptibilities of all participating nations. There are many large and many small nations other than ourselves and the United States of America. They must be consulted in advance, not only on the question of their entrance but on the precise formulation of the scheme, and their approval must be secured, if necessary, by modification. Only by so doing can we hope to reach a world instrument for the self-government of all nations. I believe, therefore, that I am speaking for them as well as for a very large number of people in this country and in America when I say that we are exceedingly anxious to restore order and stability in the international world. For that we are prepared to pay a high price in subordinating national self-interest and individual prejudices. But the order and stability attained must be consistent with free and full life for all. It would be a disaster indeed if we found in the end that all we had got was the stability of an enslaved world and the order of a financial Gestapo.

I would like to say at once that I find myself in agreement with the conclusion of my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence), that if we are so minded and are prepared to adopt the necessary discipline and to sink our own special interests, there is no reason why we should not, upon terms, set up and make a workable scheme for the settlement of international clearances, international trade and financial relations. Whatever differences of view we may take about these draft proposals which have been issued, either from the American or from our own Treasury, or differences that we may find with regard to other schemes that may be brought forward, at least there will be complete agreement on the great importance of the subject. Also, I would like to associate myself again with my right hon. Friend in expressing gratitude to those who have worked so hard and have produced, with differences of emphasis and differences, in some degree, of principle, two very lucid schemes which will help us in our deliberations.

There has indeed been some criticism of the way in which these projects have been brought forward. It has been suggested that it would have been far better if we had had an agreed scheme of some kind to consider. I can imagine that had that been the case and had such a method been contemplated or adopted, the Congress in America no less than the Parliament in this country would have resented very strongly such a method and reserved to itself the right of discussion and criticism and the right of decision in these matters. We need no division of opinion as to the time at which these matters are to be discussed. The time is the earliest opportunity that we can find to consider them. It has been stated with considerable force and lucidity in the introduction to the American proposals, that if a solution could be found in reasonable time, all these prospective difficulties with regard to the exchange would be in fact a very helpful tendency towards shortening the war. It is pointed out with great cogency that the United Nations would feel much stronger and be more determined if an assurance could be given that, when the war comes to an end, we shall not relapse into that period of chaos and general beggar - my - neighbour policy, which led to the pre-war condition of general instability and economic collapse. Our discussion so far to-day has already shown that there are many angles and points of view that have to be taken into account, and it would be unreasonable and wrong to accept any very speedy conclusions or a final settlement to be reached. I join again with my right hon. Friend in hoping that there will be no attempt to rush this matter. It must receive the fullest and most careful consideration, not only in this House and in America, but—and this is a world question—from all those who are entitled to consider it.

Sometimes one finds one's friends expressing doubts as to whether it is possible to devise any machinery for coping with all the international phenomena which might be expected to display themselves when the war comes to an end. When that feeling does express itself I think it is right to look back only to the pre-war period to realise that we must try, with all the skill and energy of which we are capable, not to relax into such a period again. If we did, the war would have been fought in vain. That period was one which the Prime Minister has described as being a period of bickering and confusion which squandered the hard-won victory of 1918. We must run no risk of falling back into that sad and lamentable condition. I think it is important, in consideration of proposals which may be brought forward, to bear in mind the fact that any scheme which is to be generally acceptable must aim at making the minimum amount of demand for concession to national sovereignty from any of the members. It is quite obvious that there must be some concession because you cannot have an international scheme of any kind unless you have some obligations attaching to it and unless it is possible to have some disciplinary action. Comparing these two schemes I do not think that there are any definite proposals which are not reconcilable and which would overstep the condition I have laid down, namely, that there should be the minimum amount of interference with internal affairs. The importance of that is of the first magnitude, and it is perhaps relevant to point out that it is not merely a question of direct disciplinary steps one might take to deal with a definite situation which had arisen but the very close relations which obtain between countries with regard to wage levels and exchange rates. That, I think, is one of the things that should be kept in our minds, whatever plan we may be considering.

It is perfectly natural that a leading part should be taken in this matter by America and by ourselves. It fell to us to make the first proposal in August, 1940, when we made a statement of Allied war aims in the Atlantic Charter, and what we are doing now is to try and find mechanism which will serve several very important aspects of international finance and give content to that Charter. I think it is quite impossible to imagine that the Charter could have any real meaning unless we had means, such as are here now proposed, available and machinery for schemes of international development, relief, long-term loan policy and the like. It is quite impossible to imagine the fifth Clause of the Atlantic Charter—a Clause which stipulates that we, the United States, and the other countries which subsequently adhered to the Charter will seek to secure access on equal terms to trade and raw materials for all countries and for all people, great and small—unless we are prepared to devote ourselves to giving real content and meaning to that Clause.

There is another challenge in Europe to-day which must make us stir ourselves in this matter. The Chancellor of the Exchequer in his observations referred to the exchange control which was adopted by Germany before the war. I do not think we are always apt to remember that there is in operation in Europe to-day a very successful and most complete scheme of exchange control, and that is the system of exchange control imposed by Germany on all countries in Europe which are under her control. It is ingenious; it is, of course, entirely in the interests of Germany and nobody else, and it is the most perfect piece of legalised robbery the world has ever seen. It is working with lamentable efficiency. In this example there is a challenge to the United Nations to set on foot, devise and carry out among themselves by common consent and good will means of co-operation for the common cause, bearing in mind, as is stated by Mr. Morgenthau in his document, that we are now learning for the first time that prosperity, like peace, is indivisible.

I do not propose to deal in any detail with the actual proposals in either of these Papers. I infinitely prefer, I must say, the greater simplicity of the English plan. Any plan which is most likely to be successful is the plan which is the least rigid; it is essential that any plan, to have success, must be as flexible as possible. It seems to me that there is much more rigidity in the American plan than that which has been devised by our British experts. I am bound to say that we are at a disadvantage when we begin to discuss this matter, in that whereas we have Members on the Treasury Bench who can give us information in regard to the English scheme, we have nobody who can give us information and enlightenment on some aspects of the American scheme, some of which is very obscure. I recognise the essential difference between the two schemes, but I have still to be convinced of the desirability of the proposal to set up a substantial capital fund, which is an essential feature of the American scheme. If it is too small, it is bound to add to that rigidity, which is a great handicap to any scheme, and if it is too large, it is difficult to understand what useful purpose it would serve. In that connection I have not yet satisfied myself as to what is the reason for the adoption of a new monetary unit in the American scheme at all, having regard to the very limited functions which it is suggested that unit has to fulfil. As I have said, I infinitely prefer the simplicity of the English scheme, which would extend—.

My hon. Friend keeps talking about' the English scheme, but he said it had been prepared by British experts. Does he not mean British rather than English?

My hon. Friend can designate the scheme as he likes, but I do,not think we are under any misapprehension as to what these tentative proposals are. The two schemes before us at the moment are one by British experts and one by American experts. If I have expressed myself ill, I can only say I am sorry, but there is no misunderstanding in my own mind about what I mean, and I hope I may be able to convey my meaning to those I am addressing.

In general, in considering this scheme and any other scheme which in the course of time is likely to be brought before us, we should remember that we are not living in the days of the 19th century. We have to learn from the terrible lessons of the pre-war years, and here I must say that it cheered me to see "a Daniel come to judgment" to-day in regard to many of the things about which we used to disagree so actively in pre-war years. I think we must bear in mind—and it is a hopeful thing—that there is hope of a higher standard of human conduct in relation to economic affairs. The policy of Lend-Lease, which has already been referred to and with which I most cordially agree, was a far-seeing and magnanimous idea of pooling all Allied resources in the hope of achieving common victory. That is the spirit we must carry forward into our post-war planning. I do not think it has been mentioned today, but I am proud to think it was Canada, a member of the British Commonwealth of Nations, who devised and put into operation, for the first time so far as I know, a wonderfully generous, far-seeing and wise proposal for helping this country and the common cause. These are transactions of the kind which point the way to a higher standard of human conduct which it will be necessary to maintain in our economic relations if, at the end of this war, Europe is to be made a place which is fit for human habitation and the world is to be made worthy of the sacrifices of the people.

I am sure the Committee listened with the greatest interest and keenest appreciation to the very able exposition which the Chancellor of the Exchequer gave to the White Paper, and I should like to congratulate him on the very definite Free Trade flavour of some of his remarks. I hope the Financial Secretary will convey to him how very much the Committee appreciated the way he dealt with an extremely difficult and complicated problem. Anyone who has had experience of trade or has even travelled on the Continent, will realise how the instability of the exchanges militates against any possibility of an expansion of international trade. Instability of the exchanges is not in itself a disease. It is a symptom of a disease, and it is to cure that disease that these schemes of the White Paper and the Morgenthau plan have been introduced. One of the many causes of the instability of the exchanges abroad was the inability of those who had responsibility for the financial direction of those countries to distinguish between wealth and money. They seemed to think that all they had to do to make their country rich and prosperous was to print sufficient paper money, in other words, to provide what they called sufficient purchasing power, and all would be well. It did not work, and, as a result of that among many other things, there is this need for some scheme to regulate foreign exchanges. The Chancellor dealt largely with the theoretical aspects of these schemes, and I am sure he would excuse me, if he were here, if I put before him a few of the practical difficulties as I see them.

It is suggested in our own White Paper that all the Allied nations should join in this exchange union. It is going to be very difficult to get 39 nations to agree on anything, but getting them to agree on anything is likely to be the merest child's play compared with the difficulty of persuading them to abide by those agreements when they have been reached. The results of the classical example of agreement between nations, namely, the League of Nations, does not give us very much encouragement to hope that the agreement will be kept, even when it is finally arrived at. After all, four out of five of the nations that joined the League did it for one purpose only, for what they could get out of it. The idea of making sacrifices to assist their fellow members never seems to have entered their heads. In the same way I am very much afraid that four out of five of the Allied nations who join the Clearing Union will join it for what they can get out of it and will not consider helping it in any way whatever if, by doing so, they will cause themselves the slightest inconvenience. I cannot help feeling that there would be a better chance of success if, instead of endeavouring to promote this agreement between 39 nations, we were satisfied with coming to an agreement between five, six, seven or eight of the nations primarily interested in foreign trade and industry. Those five or six nations would naturally be ourselves, the United States, and I should suggest also Russia, partly on account of the potential industrial development which we see in that country and partly because I believe the output of gold from the Soviet Union is something like three-sevenths of the entire world output at present, and that in itself must have a very great effect on any system of international exchange and co-operation in the future. Another country which I suggest should be included if possible is China, because the industrial development of China cannot be delayed for any great length of time. It is bound to come in the immediate future.

The United States has produced at the same time as our White Paper the Morgenthau plan. I do not know whether it was published as a counter-blast or whether it was intended to assist us. I do not know, of course, to what extent agreements have been arrived at between our Treasury experts and those on the other side of the Atlantic, but I cannot help feeling that agreement will not be facilitated on account of the fact that the close outside resemblance between the two schemes does so much to camouflage the very fundamental differences that exist between them, because those differences are unmistakably both deep and fundamental. First of all there is the very much more important place that is given to gold in the United States plan, and I do not think that we can hope that the United States can be expected to meet us to any great extent on that point. After all, the United States, having acquired something like nine-tenths of the entire gold in the world, are not likely to see its use relegated to the manufacture of wedding rings and the stopping of teeth. Of course, if the United States could be persuaded to disgorge or to distribute some of the gold they have collected, and if at the same time we could be assured that it would not automatically return there, one of the most difficult problems of future world trade would be solved. But I do not think there is any very great possibility of that, because up to the present the United States do not appear to have realised the responsibility which attaches to a creditor nation. Everyone talks of the crimes that debtor nations have committed, but very few people hitherto have criticised the harm that a creditor nation has done to the world if it has not been willing to treat its accumulation of gold in a fair and reasonable way.

One hears many criticisms advanced in these days of the vast amount of capital that has been lent abroad by this country during the past 100 years and the vast amount of it that has been lost. I think it is estimated, probably with very considerable accuracy, that something like £4,000,000,000 of capital has been invested abroad and lost during the period between 1850 and 1935. That may possibly be true, but had not the British capitalist seen his way to take the risk involved in advancing that money abroad, we should by somewhere about 1890 have arrived at the position which the United States had arrived at in 1935. We should have accumulated all the gold in the world, and, unless we had been prepared to advance it, no further trade would have been possible, because no one would have had any real money to buy it with. That is the position which the United States had brought themselves into by the year 1935, and unfortunately a very large proportion of the United States population do not yet realise that that is the position they have brought themselves into.

Will the hon. and gallant Gentleman elaborate the point about the distribution of gold?

Either the United States would have to lend the gold and take the risk of its being lost, which is tantamount to giving it, which is exactly what this country did for 70 years, or else all trade on the basis of real money must end, because all the gold has been accumulated in one group of hands and no one else has any to buy any goods with.

If you like to look at it that way, but I think the Chairman would call me strictly to Order if I dealt largely with Lend-Lease in this Debate. Another difficulty that I should like to bring to the notice of the Committee is the position of neutrals. Are they to be invited to enter, and, if so, to what extent is it going to prejudice the future of the scheme if they do not accept the invitation? I do not see any reason why Switzerland and the Argentine in particular should forgo their freedom of action by coming into this scheme of a Clearing Union, because I cannot see that it will do them any good, and it may very easily restrict their freedom and impair what they want to do with regard to their own particular trade and industry. In addition, if those countries do not come in, they will present a haven of refuge for refugee capital, which is one of the things that the Chancellor in his speech and in the White Paper has suggested as not being actually necessary.

While control of capital may be necessary for some short period after the war, I cannot help feeling that it will be desirable to have it done away with at the earliest possible moment. It will be very difficult to control capital once peace has been declared. It is one thing to control it under a war economy, and it is a totally different thing to control it with the different feelings that will develop once peace has been signed. One frequently hears talk of the success which the Germans have met in the control of capital, but we must not lose sight of the fact that the control of capital in Germany only took effect after all that capital had practically gone, and also that it was only rendered effective by means of the secret police and the internment camps, and it-led to that brutal treatment of the Jewish race because they were supposed to be the principal exponents of the financial black market. With regard to the control of capital, I would only say, let us have it if it is absolutely necessary, but if it can only be rendered effective if the proposals adumbrated in the White Paper can only be rendered effectively by Gestapo methods and concentration camps, then let us try something else.

The proposals that are placed before us for consideration today are an important step towards what has been the tendency through the last 5o years, that is, world government. While they may be a very gentle step towards that, they play an important part in that process. I might describe them in popular terms as proposals to set up a financial League of Nations. The British proposal goes further and proposes a Bank of all the Nations. If we think of the proposals in these terms, we not only see exactly the value of the proposals, but we see what are likely to be their limitation. The League of Nations as a machine was an excellent framework but the trouble was that the nations were not able to work within the framework or abide by the rules, not because the nations did not want to abide by the rules but in many cases simply because their own particular vested interests conflicted with the interests of the general view of the world. America did not come within the League of Nations because she thought she would be better working in isolation. Other countries have come in and gone out as their interests dictated. This framework could only work to the extent that the nations within it found it possible to use it in their own and the general interests.

To be successful there has eventually to be developed a world consciousness instead of national consciousness. To that extent it does lead to a surrender of national sovereignty. The Bank of all the Nations has as its corollary the creation of world money for the first time. The name "unitas," which is not original, because it is used by the Co-operative Society in this country extensively, and the word "bancor," which suggests among miners a popular game, are not, I think, happy choices. I think that we could get a much simpler type of name, such as "doros," on the lines of pesos, but I like neither of the names proposed. The purpose of this financial League of Nations is to stabilise international currency and to try and overcome the tendency to economic warfare. In the period between 1920 and 1939, currencies became one weapon in the struggle among the nations for markets. All countries manipulated their currencies in order to give themselves an advantage in competing with the goods of other countries. The net effect of that, economically, was that nations were advertising national "bargain sales." If you reduce the value of your currency, you simply say to all the world, "We are taking 20 per cent. off our goods or 15 per cent., as the case may be, and anybody can buy cheaply in this market." Nothing can prevent nations doing that, and even after this scheme is carried it will not prevent it unless the nations themselves can find ways of settling this question of the struggle for international markets. The scheme itself does something to restrict that struggle, for it says that the external value of currencies cannot be altered without the permission of the Fund on the one hand and of the International Clearing Union on the other except to a small extent of 5 per cent up or down.

I am not sure that within either of the schemes provision is made to control the other way of achieving the same purpose. For example, supposing we keep our currency stable in relation to bancor, there is nothing to hinder our Government giving a 20 per cent, subsidy on exports. That point would have to be covered before we had completely controlled the possibility of nations breaking through this scheme by roundabout methods. I want to call the attention of the Treasury to that point. It will have to make, as a part of the scheme and not as a subsidiary point, the control of export subsidies as a way of evading the scheme. It is very important to get stability, as the Chancellor said. Those who had experience in industry before the last war know that you could with perfect confidence quote a price to any part of the world for machinery that would take a year to make and with fair confidence rely—with some exceptions—upon being paid in the same kind of money as that in which the price was quoted. That was largely due to the fact that the world accepted gold as the international money and because there was confidence in it and most countries fixed and valued their currencies in terms of gold. One of the great advantages of gold over all the regulations that you might have is that even the best Government in the world and even the best world Government is in the hands of frail human beings who may be actuated by motives which vary from year to year. While it may be true that you are driving a railway train or a motor car very carefully, there is no question that if there is any chance of your getting on to an incline such as a mountain slope, you had better have the additional safeguard of an automatic brake. The importance of gold is that it is something that provides an automatic brake by the real and material world upon the frailties of human mismanagement.

To that extent I think that the fetish now of despising gold has become as foolish as the former fetish of worshipping gold. This question of tying currencies to gold is very important because, after all, gold is the last commodity to move. Countries do not export and import gold unless they fail to conduct their trade in the form of other commodities. America gets gold because her manufacturers want to sell goods to other countries, but her farmers are going to take jolly good care that she does not buy goods from other countries in order to balance up those sales if these imports injure their home market. Therefore almost the only import that does not interfere with American home markets is gold. America has been conducting a system of Lend-Lease by sending out useful goods and importing relatively useless goods in the form of gold and burying it in the ground in America after it has been taken out of the ground in Russia, America and Australia. That is the economics of a mad house. Countries have to realise that this fetish of accumulating gold is simply nonsense. It may have a value in an emergency, but in normal conditions it is quite useless and remains useless even in America.

I gather from the hon. Gentleman who spoke last that he is worried in case some nations do not come in and want to attract all capital to their own countries. I think that he is unduly fearful, because it does not matter whether nations are in or not. If they are going to trade with the world, they have to deal in some kind of terms that the rest of the world understands. No country can trade with them unless they can rely upon their currency being the same when the job is finished as when the estimate was made. Therefore, whether you like it or not, countries have in the long run to be true and faithful to their contracts. The experiment of using currency as an economic weapon in the war of trade during the last 10 or 15 years brought home to the nations that as soon as one nation changed its policy and altered its currency terms in relations to gold we all turned. Otherwise there would have been economic chaos. There is therefore no difficulty in all nations eventually agreeing to some scheme of this kind and the common sense of the world will realise that we must have international money whether it is stated in terms of gold or not. It can be stated in terms of coal. I must be certain that if I am purchasing goods in America and have got 100 tons of coal, I want goods that are worth 100 tons of coal. If America sell goods with which they could buy in America 100 tons of coal, they want things from us which are equal to 100 tons of coal. One hundred tons of coal in both countries is equal in value and therefore the goods which are exchanged are approximately equal.

There must be some measure of value that will give confidence to people that they are not being cheated by currency manipulation. Coal is an inconvenient thing, and the world puts it aside and puts aside silver and choses gold. There is no reason why we should dispense with gold merely because human beings have mismanaged its use. I agree that the American scheme is rather fixed in its ideas about tying international currency to gold. There is a lack of flexibility about it. The British scheme is preferable, because it allows not a fixed gold standard but a managed gold standard. A managed gold standard gives the two advantages of intelligent manipulation with, in the long run, material control of mismanagement. Intelligent manipulation does not do away with the gold standard. The idea that 1931 the gold standard broke down is really farcical. The gold standard did not do anything in 1931. It was the currencies of the countries that broke down because of the international mismanagement of those currencies. After the currencies broke down how did we know the value of the £? We knew that the value of the £ was 15s. because it was worth 15s. in terms of gold. In other words, even if the currencies all go awry, every country in the world still measures its currency in terms of gold. I hope, therefore, that those who speak further in this Debate will not be led away with the anti-gold fetish any more than formerly people used to be misled by the gold fetish, but will realise that it is a useful instrument and that both schemes have done right by trying to tie currency down to some fixed standard which is intelligible to the whole world and accepted by the world.

On the point of warning the anti-gold people, does not my hon. Friend think that there is enough gold in the world already for all practical purposes, and is it necessary to produce any more?

I do not think we should take a financial Debate of this sort into the regions of the amount of gold that should be produced.

I do not propose to get into the realms of the production of gold, but the question raises the rather important point that some people think that we must have the same amount of gold as there is currency. The world has developed its trade very largely, however, by the discovery by the banks that substitutes would do quite as well as gold in financial transactions. The greatest number of transactions to-day are carried through by cheque. Many transactions are carried through by bank notes and very few by gold. To-day, the use of gold as money physically is practically non-existent. It only remains, so to speak, in the background as a measure. We have a yard measure somewhere about the House of Commons which is the guide to the yardsticks all over the country. Everybody does not carry that particular yardstick about; they have substitutes, and if we have the measurement of gold by the cost of its production in even one mine, that would give us the measure which we would require and we could even make it a symbolical measure, and it would work equally well. The quantity of gold is quite immaterial, and for my part America can have all the gold in the world provided we can get the typewriters, motor cars and other things which America can supply. If American wants to exchange typewriters for gold from the African mines I have not the slightest objection. It makes no difference to international trade at all.

One of the main purposes of these schemes is to iron out unequal trade balances, and this of course brings them down to the fundamental difficulty. The League of Nations was good as a machine, but it could not function fully because the nations were using it for certain other things they wanted. In this trade balance arrangement we are up against the fundamental economic problem. It is true the scheme does not propose to deal with this but wants to leave it for a further investigation and for a secondary scheme, and I accept that as being the wisest thing to do, but it is necessary to say this. American manufacturers—I do not say America, because countries are not units in this case —are hoping to export machinery to every part of the world, and many people in different parts of the world are anxious to buy it, but the problem before this war, and it will be the problem after this war, is in what form these other countries will pay America. The Chancellor has been, accused of delivering a Liberal Free Trade speech to-day, and there is no doubt that the Liberal statements of olden days that you could only buy other goods from other countries by export of goods or services was fundamentally correct, and if America is sending out goods, the only way in which she can be paid is by goods.

Well, gold is one type of goods. In any case America is exporting goods, and her manufacturers want payment in dollars. Whether dollars are printed on pieces of paper or on pieces of gold, they are fundamentally tickets which entitle the bearer to American goods. The only way in which the foreigner can get dollars or tickets for American goods is by selling goods to America and getting dollars in return. The problem for America is whether Americans are prepared to buy foreign goods to balance the goods she exports. Take the case of Argentina. The Argentine may want to buy American machinery, motor cars and other products. Can the Argentine sell to America meat, skins, and other products of the Argentine? Obviously the Middle West of America would be up in arms against' that suggestion, and in America the balance of power seems to be with those people who object to their internal markets being interfered with and who want to keep foreign goods out. America has a problem to face in that respect which is far greater than ours, and no amount of international currency manipulation will solve that fundamental economic problem of America. Nothing can make America buy goods if she does not want them. Therefore, America is certain to have an export balance—in other words, becomes a creditor nation. So long as she does not want payment, I agree with the hon. and gallant Member for North-West Hull (Sir A. Lambert Ward) that it does not matter. We can take all she gives us for nothing, and so can Russia and any other country. But obviously the Americans will not consent to that going on for ever. We are in a much more fortunate position, because we can eat Argentine beef if they will take our machinery. But the tangle arises when the Argentine wants to buy American machinery and America does not want to buy Argentine beef. We want to buy Argentine beef, but the Argentine may not want to buy our machinery. Here we get a triangle that cannot be solved even by this international currency scheme. Therefore, I suggest that all Governments —and I am satisfied that our Government are conscious of this—will have to solve the problem of ironing out their trade balances by trying to get countries to agree to trade with one another, and I am satisfied that the tendency before the war of making bilateral agreements, that is, trading agreements between the manufacturing countries and the food producing countries, between ourselves and Argentina, between ourselves and Australia, between ourselves and New Zealand, will be resumed after the war and that that will be the fundamental basis on which we must build up international trade. I am however satisfied that in spite of that the exchange machinery which is proposed in these schemes is of extreme value.

Why use the term "bilateral"? Are there no such things as triangular transactions?

There may be, and as a matter of fact prior to the last war the whole scheme was multilateral, and the proposal of this International Clearing Union is to try to get back to the multilateral basis, and if a large number of nations come into the sterling clearing area or whatever clearing area is established, of course it automatically becomes multilateral, which is much more satisfactory, but I should imagine that it will start off in some cases from a bilateral position and move in the multilateral direction. In short, movements of money are the shadows, and the movement of goods in the world is the substance, and the only way we can get down to realities is to deal with the movement of goods.

The British plan gives many constructive suggestions outside the scheme itself. It makes it clear that the world must plan or perish. We have got to have world economy, or some nations, and perhaps ourselves, will get into a worse difficulty. The British scheme postulates an international policy for war relief, reconstruction, etc. World international policy means that somebody is going to control it. One of the difficulties of our scheme, indeed of both schemes, will be the fear in countries that this world bank will interfere in domestic policy, that, for example, if this country should decide to adopt the Beveridge scheme or some other social reforms, this international bank will say, "You cannot afford it." In the machinery of the scheme that question is provided for because a country within its own borders can do what it likes, but when it comes into the world it must be world conscious and comply with world rules, and I think that is internationally sound. But it implies something which I think was not quite clear from the Chancellor's speech. The Chancellor said a trader could go to the bank and get "foreign exchange." I am sure that he did not mean it, but that conveyed the impression that it would be the old way of getting foreign exchange. I understand from the scheme that all foreign exchange in the future will be in the terms of bancors or unitas, that no other exchange will be allowed inside any country. [HON. MEMBERS: "No."] Well, I think you are going to break down the fundamental basis of international money, if you are still going to allow other people to import international exchange into the country. The British scheme makes it clear that there is to be complete control within this country of all foreign exchange movement, and I think that is fundamentally sound, because unless we are going to control our own internal economy, we are going to allow world speculators to be able to upset it whenever it pleases them. The scheme also envisages a similar internal economy in other countries. Russia undoubtedly could come into the scheme easily, because the whole of her foreign trade is directed through one bottleneck, as it were, which is under definite control. Our own country also has a great deal of control, but of a more flexible character, which I frankly prefer. America, if it is to solve its problems, will have to formulate some scheme of fairly definite international currency control.

The other point that the scheme proposes is financial pressure to supplement the international police force of some kind which will develop in other directions. I think that is also a most important factor. One thing which helped the League of Nations to break down—

We must leave the question of an international police force out of this Debate. If we were to develop that, it would spoil the chances for other people to make speeches.

May I suggest, Mr. Williams, that you should reconsider that decision? After all, the international police force is an essential condition of the success of this scheme, because there is no other way of making recalcitrant members obey the rules.

I did not intend to pursue the matter of an international police force, although it comes into the proposals of a more general character which are made in the British scheme, but there is no doubt that the breakdown of peace and the peace machinery was due to the fact that economic pressure could not be exercised in a sufficiently co-ordinated fashion during several crises through which we passed before the war. I welcome the possibility that after this war there may be machinery which can keep the peace by economic pressure rather than by armed pressure, although I quite agree that in the long run an international police force is an implication of the scheme.

The other proposal is for an international investment board. I would suggest that this is a point which should be developed much further, and I understand the Americans may bring forward proposals dealing with it, since they will be doing a lot of the investing. The international investment board will be of extreme importance, because many wars in the past have arisen not because nations wanted them but because of the anarchy of investments which landed nations into international trouble.

Another point is the use of currency as the managed governor of the trade cycle. The Exchange Equalisation Fund was a tremendous step forward from the point of view of checking and balancing foreign exchange movements. It acts very much as does a governor on a steam engine, keeping it going at a steady speed, and I welcome the idea that this scheme can be used for the same purpose. All these schemes presuppose that eventually there is going to be world government with the world as an economic unit, and I think it is fundamental to have some scheme for the distribution of the vital products of the world. The distribution of rubber, tin, coal, iron and perhaps gold even must be brought under some international control, because these fundamental primary products which contribute to the power of nations are going to be materials for which they will struggle, whatever framework is organised, and I think that at the earliest possible moment a similar proposal should be brought forward dealing with the economic side of international affairs, so that the world can get down to study the material basis on which this financial superstructure is built.

I would like to congratulate the Chancellor upon his exposition of these schemes, and both the American and our own financial experts who have got down to studying these matters in this advanced stage. It all gives me hope that after the war we are to pass into a world which will be at least guided more according to human will and human morality than according to the chance of economic fluctuations and speculative adventure. I welcome these schemes, and I hope that we shall be able to reconcile them both and build a world organisation upon them at the earliest possible moment.

I do not suppose that I am the only Member on this side who enjoys speeches made by the hon. Member for West Stirling (Mr. Woodburn). Few Members of the party to which he belongs speak with greater force or interest on financial questions. I was particularly interested in his dissertation upon gold, which struck me as a very unusual one to come from that side of the House. At an appropriate part of my speech I hope to say a few words on the subject. I will only add this further word, as far as the hon. Member is concerned: He asked why the United States were interested in moving gold from one hole, say the mines in South Africa—the only country which the hon. Member omitted in his catalogue of gold producers but far and away the most important—to another hole in the ground, namely, the vaults in their treasuries. He had previously answered that question in his speech; the answer is that they were not prepared to take anything else. That is why they have that vast accumulation.

In reply to a Question which I put to the Chancellor of the Exchequer not very long ago, the right hon. Gentleman stated categorically, as I felt certain that he would, that the British currency plan was not to be looked upon in any way as a rival to the American plan. In further response to Questions put by my hon. Friend the Member for Lowestoft (Mr. Loftus) and myself, he arranged, through the courtesy of the United States Government, for the publication over here of the American plan. It is worth noting that in the Appendix to that plan Mr. Secretary Morgenthau states that he offers his scheme for study, and, acknowledging the fact that the British scheme was then to make its appearance, he was not putting forward his own scheme in opposition to it. So we can therefore say that both sides of the Atlantic set out wedded to the same ideal, and apparently with open minds, of how to prevent the recurrence of the financial and economic maelstroms of the period between the two wars. This is a great and welcome step forward, and I ask myself whether, had such a method been available in the 1920's and 1930's, the war would ever have taken place.

The British Press welcomed both these plans and told us a great deal about their points of resemblance. In fact, one might have thought that an agreement had already been reached. I have read both documents, and I have found it difficult to see how two plans so fundamentally different could have been represented as only slight variations on the same theme. I would like to say that it is not blind patriotism which attracts me" to the British plan, but a realisation that it is a far-seeing State paper which breaks new ground and the authors of which seem to be gifted with as much political as economic perspicacity. I think it was best described, in a letter to "The Times," as "a lofty flight of thought." The American plan, on the other hand, appears to the ordinary reader as a more businesslike but less imaginative and more restricted approach to this great problem. At any rate, it may be said that they both have this characteristic in common, that each country, in preparing its plan, has not lost sight of its own interests. Both Treasuries seem to have been realist in drawing up these documents. In the few remarks I hope to make I will attempt to be the same.

I think we ought to get it into our heads right away that after the war America will be, if she is not already, the dominating economic and financial power. It is no use making proposals to her which do not take her interests into account. At the same time, I am equally convinced that we have, in the present administration, a better prospect than for many years past of reaching genuine agreement on international matters, if only we are prepared to show the right spirit of compromise and do not forget the limits beyond which no American, either from heredity or temperament, will go. I propose shortly to examine some of these points of resemblance and difference, and to suggest how a bridge between these plans might be built, or at any rate how the foundation for such a bridge might be laid. I am sorry if I have to repeat some of the observations of previous speakers, but it is rather difficult not to do so in a Debate on a subject so cut and dried as this.

To take the similarities first, the plans clearly have as their principal objective the removal of foreign exchange barriers and the freeing of world trade, both in regard to goods and, to a lesser extent, in regard to capital movements. In this respect I do not think that it can be doubted that the British line of approach is the more positive. Our scheme of creating credits will give trade a chance of recovery after the war, with a minimum of restrictive influences, for no sanctions are proposed until the lapse of a reasonable time. The American plan proposes that sizeable sums in gold or dollars should be put up by each country at the outset, but that would be impossible for many, if not most, in view of the fact that dollars will continue in short supply throughout the world for many years to come. Then, again, both plans are definitely agreed, although undue haste is to be deprecated, that some agreements should be reached as soon as possible in order that the plan can be put into operation immediately after the war. They both deplore discriminatory foreign exchange practices and bilateral trade agreements.

The British proposal for clearing, along the lines of banking practice, and by the use of a genuine international currency, seems to achieve this result more thoroughly than the elaborate arrangements, put forward under the American Stabilisation Fund, for settling manifold exchange accounts between individual countries in their own currencies. Then, again, both plans agree to levy interest charges on excess overdrafts, but the British plan emphasises the importance of similar action on excess credits. The most original part of the British plan, and the one most highly commended, is concerned with the methods to be adopted with persistent creditor countries. Even so, I consider that the remedies proposed in that case are inadequate, because they are impossible to enforce—at least not to the extent of those proposed for debtor countries. This is doubtless done out of respect for national sovereignty, yet if we fail to tackle the question of national sovereignty, in spite of the lesson of the failure of the League of Nations, and persist in ignoring the need for a higher code, it is difficult to see how any international body will be able, in the long run, to weather the storms of conflicting sovereignties.

The same arguments, or very similar arguments, apply to the right to resign, which, in my opinion, contrary to one or two other opinions expressed to-day, is too freely given in both plans. But let it be said that the authors of this plan have to take human society as they find it. Nevertheless, I would have preferred that countries should bind themselves not to resign for a much longer period than is proposed in either plan. And there I find myself in opposition to the remarks made by the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence). One merit of the American plan in this respect is that a country which resigns will not recover any gold or foreign currency which it might have deposited with the Fund but only its contribution in its own currency after adjustments for its debts to the Fund. On the other hand, the British scheme calls for no collateral of any sort unless a country has a debit balance of half its overdraft quota. It seems to me that resignations will be tendered more frequently where a country can do so without loss to itself. I will therefore propose a compromise to cover this point later on. Finally, both plans are agreed that special measures should be taken to deal with abnormal war balances.

On the other side, there seem to me to be six fundamental differences, differences in principle and not in detail. First, the British plan aims at expanding world trade and at smoothing out unevennesses, whereas the American plan gives no such direct encouragement. It seems to me vague on the subject of remedies to be applied to debtor countries to improve their position, and not unnaturally it is completely silent about creditors. It has limited itself to the curious suggestion that currencies in short supply, which I imagine will be the dollar, should be rationed among debtors from the point of view of the general international economic situation, and I find it very difficult to understand the meaning of that proposal or to see how it would work. Again, the cure for the early stages of excess debit balances, namely, the devaluation of a country's currency, can under our scheme be imposed upon itself up to a stated limit by a country without asking permission from anybody. Under the American plan it requires a four-fifths vote of the governing body, on which, as has already been said, the United States and the British Empire are both likely to have a veto. The Stabilisation Fund, unlike the Clearing Union, makes no attempt to counteract undue expansionist or contractionist tendencies in world trade by the use of the financial weapon. On the contrary, the Stabilisation Fund, it seems to me, will sterilise a considerable volume of wealth, whereas the British plan will create wealth in much the same way as a bank creates wealth by making credit. Secondly, the British plan is
"fully international and not based on a multiplicity of bilateral arrangements."
In other words, one country does not have to consider its balance with another but only with all countries. For instance, Britain's debit of trade with the United States would be largely offset by our trading credit with Europe. The Stabilisation Fund, which operates on different principles, calls for many more individual transactions which will be made in national currencies.

Thirdly, America wants to eliminate foreign exchange controls, whereas we envisage their retention, though I think it is only fair to add that both countries recognise the need of control of capital movements, and it is difficult to see how such control could be effective if transfers in respect of trade were completely freed. Fourthly, overdrafts allowed by.the Clearing Union are vastly in excess of the proposed contributions to the Stabilisation Fund. For instance, I calculate that Great Britain's quota under the British plan would be approximately £950,000,000, according to the formula given in the White Paper, which represents three-quarters of the Stabilisation Fund proposed by the United States. Therefore, while again recognising the difficulty which many countries would have in finding their con- tributions to the Stabilisation Fund, I very much doubt whether it is big enough. Fifthly, I must emphasise the difference in the method of determining the quota for each country. According to the United States plan, that is based on gold holdings and national income. According to ours, it is based on total volume of trade. I think it is quite clear that here is a matter in which both countries have obviously paid some attention to their own position in both those respects, in which I do not suppose there would be much difficulty in reaching a compromise. Sixthly, and last, the Treasury has indicated how the Clearing Union could be used directly or indirectly in the service of post-war reconstruction and relief, how in fact some new and living world organism might grow out of it. The American Treasury, on the other hand, believes that such duties would impede the functioning of the Stabilisation Fund and should be entrusted to other bodies. Their whole outlook, in brief, is more restricted.

Therefore, the question which has to be answered is this: How can a workable and effective scheme be evolved from such differences as these? The short answer probably is by the maximum amount of contact between officials of the two Treasuries and the minimum of public discussion. Without wishing to go into any details, I think I can suggest certain reconciliations. I have already said that recognition must be paid to the dominant position of the United States and to the fact that she holds the world's largest stock of gold—at the present time nearly £4,000,000,000, and furthermore constantly increasing. It would be folly not to secure her position in this respect, and it seems to me essential therefore that the bancor, like the unitas, should be fixed in terms of gold and, to use the American method, only alterable by a four-fifths vote. At the same time it is very important to emphasise that for the reasons very well explained in paragraph 10, page 9, of the British White Paper it could only be freely convertible one way, namely, gold into bancor, and not vice versa, for if an international currency means anything at all, it means that it is acceptable to all countries for the settlement of outstanding balances, whereas a two-way convertibility merely means reversion to the old form of gold standard. My proposal would have the merit that America would never be confronted with the risk of her gold holding being devalued or revalued against her will. Furthermore, the fixing of the gold value of the bancor would make it easier to determine the initial values of the different members' currencies, for any problem is easier to solve when you have only one variable instead of two. For her part the United States should be seriously invited to acknowledge the duties of a creditor so clearly set out in the British White Paper. The onus of putting world trade right cannot lie exclusively on the shoulders of the debtor, and the part to be played in the future by tariff revision and properly co-ordinated international lending must be recognised. As against that, I would like to say that the British plan does envisage the creation of large credits, which will be entirely unsecured. I have already referred to the risk of default to which such a state of affairs might lead. This is a serious matter for any creditor nation. Consequently, I propose that we combine both plans, to the extent of collecting some collateral, on an equality to all participating countries, in order to build up an adequate reserve against default.

Having made these suggestions, may I remind the Committee that the two plans are based on methods introduced after the 1931 slump, the British plan on exchange clearing and the American on exchange equalisation? According to the City Editor of "The Times," neither of these devices succeeded, exchange clearings because they are bilateral by character, whereby international exchange is multilateral, and exchange equalisation because the scale of capital movements, as distinct from trade movements, was too great. It is perfectly true that both plans recognise these shortcomings and attempt to overcome them. Indeed, the Chancellor of the Exchequer in his opening speech described the German method of clearings, and pointed out the faults of that system. But we must realise that no scheme can achieve this object if it is destined to witness the financial transactions to which so many nations resorted between the wars. I would like to illustrate that point with a quotation from the "Economist" of l0th April:
"In the world before the great depression, when sterling was deliberately over-valued, when the franc was deliberately undervalued, when this country lent long and borrowed short, and when the U.S. first invested regardless of the productivity of its investments, then withdrew into its shell, and finally drastically increased its tariffs against the goods of its debtors, no system could have worked."
These happenings are within the memory of all, and the warning is clear. The fact that these two plans have been published shows that the two greatest financial and commercial countries in the world recognise the warning. That, in my opinion, represents a world event of the first magnitude.

This is a Debate of very great interest. When I heard the Chancellor of the Exchequer reading his statement, I thought it a pity that he had not published it as a White Paper. If we had had it before the Debate took place, it would have been more helpful. As I listened, it seemed to me' that at the basis of those two documents there is the question whether the future world firm will be America-Britain Limited or Britain-America Limited. They are designed for a future seeking to realise the dominance either of Wall Street or of the City of London. Those two documents show that our financial experts and the Governments do not yet realise what has been happening in the world and that the old financial and commercial structure has gone. The two papers concern themselves with the setting up of financial machinery for exchange, but they do so without any relation to the realities of the situation. What is going to be the relationship between the different countries in the post-war years with regard, for example, to tariff barriers and the form of economic system dominating the different countries? Those matters are disregarded. The people responsible for these documents seem to think that if only they can get agreement on an international money, everything will be all right in future.

Events have shown that past difficulties with regard to international exchange have been due to economic problems, which have been fundamental and underlying. A few years ago an International Economic Conference was held. I forget the number of countries which were represented—over 6o, I think. Many speeches were made such as have been made to-day. There was the best will in the world to set up machinery that would enable all the countries to prosper. The various delegates discussed their fiscal relationships. They all deplored the high tariff walls that were being built in all the countries, and the fact that the different currencies gave no promise of stability. They agreed that they would all go back to their own countries and try to put the collective view of the Conference into effect in securing better relations. What really happened after they got back to their different countries was that each country decided how many more bricks were to be put on the top of its tariff walls. The walls between the various countries were not considered high enough. They had to protect their home markets, and in order to do that they were willing to go to any length in increasing the tariffs. So the world drifted on, until the problems underlying these currencies going wrong and the building up of those tariff walls led to an endeavour being made to solve them through the explosion of war. I think that the Government and the American Government are adopting an entirely wrong attitude to the problems which face us. As I see it, what we have to do is to think not that we will be able to solve those problems by trying to create an international money order, but to get down to the root of the economic problems which underlie all these difficulties.

I notice that it is hoped that if the British plan is carried through and the various countries come into this equalisation scheme, credits will be given based on the pre-war exports and imports of the countries. Hon. Members have expressed the view that this will result in an expansionist policy with regard to trade. I am not so sure. What is contemplated in those credits of 75 per cent. of pre-war imports and exports will be the amount of international trade that is to take place. We shall be faced with 75 per cent, of our pre-war trade. It will not mean an addition of 75 per cent, to the former 100 per cent, in each case. There will not be an expension of trade but a less amount of trade than took place in pre-war years.

It is hoped that there will be the avoidance of bilateral agreements. What caused bilateral agreements in the past? Why did two countries, instead of being content to trade and enjoy their share in the world markets, come to bilateral agreements? Because the Governments of each country were faced with problems which drew them into bilateral agreements. There was so much unemployment in the respective countries, and there was the difficulty of their being able to find a place in world markets for their exports, they practically came to the conclusion that the only way out for them was a bilateral agreement, a certain amount of bargaining—" You take so many of our goods, and we will take a certain amount of your goods." If economic circumstances are the same in the future as they have been in the past, then I have no doubt, whatever agreements Governments may come to, whether they become members of either the British Clearing House or the American Stabilisation Fund, they will be driven by their circumstances to the barter business again. I have intervened in the Debate to ask whether the Chancellor of the Exchequer will try to realise that the difficulties with which the world is faced are inherent in the present economic order and that what is necessary, rather than the attempt to devise a new international monetary machine, is to try to make international agreements so that the world resources shall be available on a just basis of distribution and that the plenty that can be produced in the world will flow into the homes of the people in the different countries of the world.

I notice also, with regard to the White Paper, that arrangements are contemplated which rule out all except the Allied nations for the time being. It is just madness to think that we are going to get anything like stability and prosperity in the world on such a basis. We have to plan for the whole world, taking in all the nations, and until we are willing to accept the principles of economic and social justice for all, then it is absolute moonshine to talk about realisinc, a stable international market. It simply cannot be done. I have no doubt that we shall find that this Government and the American Government and other Governments still continue to play about with paper schemes with regard to trying to secure a stable international market. It will only be when we get a world federation of Socialist States, through the social and economic security that only such a federation can give, that we shall find the real medium through which we shall have free exchange and social and economic justice for all.

He is a brave layman who intervenes in this Debate; but I think that, although I agree with a large part of the speech of the hon. Member for Camlachie (Mr. Stephen)—and I do not always agree with him—it is not a bad plan to ask ourselves at this stage what in fact we are talking about. We are talking about the mechanism of currency and exchange. That is all. We are not talking about commercial policy, or the production and distribution of primary commodities all over the world, or loans or investments or lend-lease to countries in need of economic development. Yet all these things are much more important than the mechanism of currency and exchange; and, to that extent, I agree with a great deal of what the hon. Member for Camlachie has said. We ought not to lose sight of the main economic objective set before us by the Atlantic Charter, which, I would remind the Committee, is the enjoyment by all States, great or small, victor or vanquished, of access to the trade and to the raw materials of the world which are needed for their economic prosperity. That is the fundamental objective set before us in the Atlantic Charter and we must never forget it, either here or on the other side of the Atlantic.

I doubt myself whether it is possible to work out a monetary framework until we know a great deal more than we know at present about the picture which is to be fitted into it; until some kind of trade and investment policy has been evolved. We are dealing to-day with tokens, of which gold is one—and whatever hon. Members may say to the contrary, gold is merely a token—rather than with realities. What are the realities? It is as well to remind ourselves of them, otherwise we may get enmeshed in the details of technical formulae which will carry us far from the main issue. A nation can only buy the goods and services of another nation to the extent that it can pay for them with goods and services of its own or persuade someone else to lend or give it the means of payment. Often it benefits a creditor nation to make the means of payment available to a debtor nation, rather than to accept the whole payment in the form of goods. This, in the old days, used to be called foreign investment; nowadays it is called Lend-Lease.

But it does not really much matter what it is called. It means, in practice, that the creditor nations of the world will have to give a lot away, if a balanced world economy is to be achieved.

As my right hon. and gallant Friend the Member for Kelvingrove (Lieut.-Colonel Elliot) pointed out in a very brilliant and characteristic article in "The Times" the other day, the industrial revolution is now spreading all over the world, and it is not possible for one portion of this planet, namely, ourselves and America, to take a permanent mortgage on the rest for showing it the way how. No currency plan will work unless countries with strong currencies are prepared either to buy and accept goods from countries with weak currencies, or to lend-lease those goods to other countries which stand in need of economic development. It will pay creditor countries to do this. That we proved in the 19th century. It would pay a creditor country to-day, because of the aggregate increase in world trade and, therefore, of its own production for export. But it is really an illusion to suppose that the money lent or given for this purpose will necessarily return in its original form to those who lend or give it.

A large part of the foreign investments which built up the commercial supremacy of this country in the past has never come back in the form of direct interest to the people who made those investments. The way we benefited was by increased export trade, and that is the way benefits will come in the future. For the rest, the trade of the world, as opposed to the development of the world, which is another question altogether, will surely be conducted for some considerable time on the basis of bartering goods and services for goods and services; and the actual production of the goods and services, and the type to be produced, must be decided, without external pressure or interference, by the individual nations concerned. These are fundamental economic truths, in my view, although I think they may be unpalatable to some people who are reluctant to face their implications. We cannot escape from them. And any currency plan, however good it looks on paper, which fails to reflect them, will come to grief in the long run. It is of the utmost importance to realise that no inter- national clearing scheme, however ingenious, can absolve us from the necessity of evolving a trade policy which, in the words of a recent leading article in "The Times," will have to be drafted not in terms of tariffs, preferences, subsidies and quotas, but in terms of food, raw materials, clothing, machines, plastics and electric equipment. There is a great deal of truth in that.

I would now like to turn for a few moments to the Keynes plan. It is based on two major assumptions. First, that a policy aiming at full employment will be adopted by the participating countries; and second, that investment aid of some kind or another is to be provided for countries which require it for their own internal economic development. I will content myself by saying at this juncture that these are two tremendous assumptions. I think these things will have to be done if we are to achieve the kind of world which we all want to see; but they are assumptions as great as the assumption which underlies the Beveridge Plan, namely, something like full employment in this country. The plan itself does not claim to be more than a book-keeping system for the conduct of international trade, but, as such, it could be made to fulfil a role of great international importance. The objects of the plan are well set out on page 5, but one is so important that I would like to remind the Committee of it. It is paragraph (c) which states:
"We need a quantum of international currency, which is neither determined in an unpredictable and irrelevant manner as, for example, by the technical progress of the gold industry, nor subject to large variations depending on the gold reserve policies of individual countries; but is governed by the actual current requirements of world commerce, and is also capable of deliberate expansion and contraction to offset deflationary and inflationary tendencies in effective world demand."
By extending the modern conception of internal banking theory and practice to the international field, I think we must all agree that Lord Keynes has rendered yet another signal service to humanity. What is that concept? It is that governments can, in fact, create the money required to bring the productive resources of their countries into full use. It is, as Dr. Einzig has pointed out, a logical step to carry the scientific monetary evolution of the twentieth century this further stage. Under the Keynes plan, the International Clearing Union would begin its activities penniless; but would use the modern credit mechanism to create immense wealth. The proposed currency would be provided by making use of the surpluses of those countries with credit balances, in order to finance those whose purchases, for the time being, exceeded their sales. There is nothing inherently inflationary about this. It is common banking practice. In the words of the Keynes paper:
"No depositor in a local bank suffers because the balances which he leaves idle are employed to finance the business of someone else. … The substitution of a credit mechanism in place of hoarding would have repeated in the international field the same miracle already performed in the domestic field of turning a stone into bread."
The supreme merits of the Keynes plan are five: First, it recognises quite clearly that the old pre-war system was quite incapable of coping with the vast increase in the productive capacity of the world; second, it is flexible; third, it interferes to the minimum possible extent with the sovereign rights of nations; fourth, it aims, in its own words, at the substitution of an expansionist in place of a contractionist pressure on world trade; and fifth, it appreciates that creditor countries have international obligations at least as great as debtor countries, and perhaps greater.

Contrast the White plan. I do not want to argue with the Chancellor of the Exchequer, whose opening statement was of such enormous interest, and was the most encouraging statement any Chancellor has made since I have been in this House. But it is no good glossing over the fundamental differences between these two plans. The White plan, in effect, involves a return to the old gold standard. As a matter of fact, it does not even go as far as the Genoa currency resolutions of 1922, which recommended not only the practice of continuous co-operation between central banks of issue, but the regulation of credit with a view to preventing undue fluctuations in the purchasing power of gold. Under the American plan, currencies would be fixed on gold, exchange restrictions would be discouraged, national economic policies would be interfered with, and the creditor countries would, once again, be landed either with unwanted gold or with large amounts of claims in weak currencies which would ultimately become frozen. These are the very things that smashed the world economic system which prevailed before the war. Whereas the Keynes plan aims at achieving a balance at the highest possible level, by providing that sufficient international currency shall be available to meet the current requirements of world trade, the White plan would force the whole world to keep step with any country or countries driven into a deflationary policy through lack of it. We should be back, in no time, in that old, bad, mad world of "laissez faire" capitalism, with its vicious circle of falling prices, profits and purchasing power; its competitive tariffs, subsidies and devaluations.

There are two things to be said about the White plan. The first is that we can never go back to the gold standard; and the second is that we can never tolerate any outside interference with our inalienable right to impose such restrictions on the export of capital from this country as we wish. As the Keynes paper says, there is no country which can, in the future, safely allow the flight of funds for political reasons, or to evade domestic taxation, or in anticipation of the owner turning refugee. Equally, there is no country which can safely receive refugee funds which constitute an unwanted import of capital, and cannot safely be used for fixed investments. On these two points—full convertibility into gold as is proposed by the American plan, and interference with the right to impose such exchange restrictions as we wish—there can and must be no compromise. It is better to face this issue right away. I have some claim to speak on this subject. From 1922 onwards the monetary policy of this country was absolutely disastrous. The return to the gold standard, and the deflation which it involved, brought ruin to our basic industries and our agriculture, and in the end brought us to within an ace of destruction. I was opposed to the whole business from start to finish. I deplored our return to the gold standard. I welcomed our enforced abandonment of it. And I equally deplored the second deflation which began in 1937, and which finally landed us in this war without stores, equipment, or arms. If we do this again, it will be the end. The end of all our hopes of an expansionist policy, and of social advance. It will be the end of the Beveridge plan, of improved education, of housing reconstruction, the end of the new Britain that we are fighting to rebuild. It will lead once again to world depression, to chaos, and, ultimately, to war.

We must make these facts quite plain to the United States now, before we get embroiled in what may otherwise be a quite unnecessary quarrel. We have to tell the United States that unless they, as the principal creditor nation of the world are prepared to accept payment in goods and services for the goods and services they export, there is no hope for any international currency plan; and that unless they are prepared to continue Lend-Lease on a very considerable scale, there will be no ultimate hope for their gold. It may be possible to meet them on the question of gold. An hon. Member opposite pointed out that they have £4,000,000,000 of gold as a reserve, and they are, naturally, concerned about what is to happen to it. We may be able to meet them along the lines suggested in the Keynes plan.

My hon. Friend says we must not return to the gold standard. Will he point out the difference between returning to the gold standard on the old parity and returning to it on some other parity?

It might have been better, if you had had real co-operation between the central banks, if we had gone back on a different parity; but on the whole our experience shows that it would be inadvisable to-day to go back to a gold standard on any parity at all. Let us face it, the only value of gold in the modern world is psychological. It has, admittedly enormous psychological importance. It is embedded in the subconscious mind of humanity. It is trusted. It may be unreasonable to trust it, but it is in fact trusted and for that reason it has great value. We in the British Empire have a vested interest in gold. So has the United States. So, to a lesser degree, has Soviet Russia. From a practical point of view there is a great deal to be said for trying to fit gold into the picture somehow. But it is difficult to see what other value it has beyond the psychological. The question imposes itself, and must impose itself in the future; how long is the world to go on paying the enormous sum of 1,500,000,000 dollars every year to the producers of gold, for digging up the metal in order instantly to rebury it? In 1938 the value of the gold mined was equivalent to the whole of the silver, copper, lead, tin, zinc and aluminium produced in the world. Immediately it was dug up it was hurried into ships, bustled across the Atlantic, and immediately buried again. No one except the porters ever saw it. It is difficult to resist the conclusion that all this was something of a waste of effort, to put it mildly.

I suppose it is a good thing that these currency plans have been given an airing, but I cannot help feeling that they are a bit premature, and I am glad the Chancellor of the Exchequer made it plain that he was not going to push any plan at present. If we cannot come to an agreement with the United States just now, it would be much better to let the whole thing drop for the time being, because it is not worth having a quarrel about it. In any event, I think we ought to consider all these matters—commercial policy, investment policy, and monetary policy—from an Imperial point of view first. In order to meet the requirements of the modern age, from the social point of view and the point of view of defence, we have to evolve a constructive policy sooner or later for the British Empire. Unless and until we can do this, there is no very great chance for a wider international agreement. The mere removal of trade barriers is no longer adequate to the theme. We want a positive, concrete policy of deliberately-planned expansion. The absence of unified buying and selling before the war was a great obstacle to the formulation of any such policy; but military considerations coupled with the new mechanism of credit, enable Governments to exercise a far greater measure of control to-day over the type and flow of imports and exports than ever they did in the past.

After the last war we forgot the British Empire, and in the League of Nations we attempted to bite off a bit more than we could chew. That is a mistake that we need not repeat. Let us try to walk before we run. If we can achieve, first, an Imperial agreement about commercial and monetary policy, we shall have taken a big step forward. Nor must we forget that we shall emerge from the war the only victorious European Power; the only Power in Europe with the exception of Spain, Portugal, Switzerland and Sweden, whose territory has not been either conquered or occupied. This surely means that we shall be the only European Power at the Peace Conference Table which will be able to speak on equal terms with the Soviet Union, China and the United States, and that to that extent we shall be the spokesman of Europe. I do not think we ought to make any binding commitments with America until we have consulted with the governments of Europe, as well as with the governments of the British Empire. The solution, it seems to me, may well prove to lie in the creation of a sterling area—which was being built up before the outbreak of this war—and a dollar area, followed, not preceded, by an agreement between ourselves and the United States. There might well be a rouble area as well; but it is in the area agreements which are contemplated in the Keynes paper, that the best hope of immediate advance will probably be found.

One final point. I confess that I share the apprehensions expressed in a recent Debate by my noble Friend the Member for Horsham (Earl Winterton) regarding the political dangers of a bilateral tie-up between this country and the United States, in which we might find ourselves fettered in a strait-jacket of gold, and involved as junior partner in a gigantic attempt to exploit the rest of the world. For us, the Soviet Union and China are just as important, from an economic point of view, as the United States. We should do well to begin to study the requirements of these tremendous potential markets without delay. I am not sure that our future role in world economy may not be to act as a bridge between the West and the East, between the United States on the one hand, and Soviet Russia and China on the other. I am certain that we should be ill-advised to enter into any international agreement or commitments outside the Empire which do not include the Soviet Union and China. I am equally certain that we should commit economic suicide if we entered into any agreement which deprived us of our ultimate right to control both the import of goods and the export of money.

A noted economist who might as well be nameless was once asked whether he could explain how it was that economists were never able to produce a similar solution to a problem which was confronting them and that invariably their answers were different. His reply is not without interest to those who approach this subject with some trepidation, for he said, "The economic mind is a rare gift, and those of us who are fortunate enough to possess it are able to move freely in media of thought which are incomprehensible to the ordinary mortal." If any excuse is needed, that is sufficient to justify me in taking up only a few minutes of the time of the Committee. It is not very long since we spent three days debating the Beveridge Report. That was apparently because it had assumed widespread interest and was associated with what has become known as social security. I suggest that the problems behind the two plans which we are debating to-day have really a far greater significance for social security and for everybody in this country than the Beveridge plan itself. If, therefore, one of the results of this Debate is to increase the interest in the positive measures which are needed for trading generally and the creation of jobs and of wealth, it will have done considerable good.

It seems to me that nowadays, largely as a result of the acceleration which the war has brought to the development of science, it is no longer production which is one of the problems of the modern age; rather it is distribution and consumption. In connection with that, finance is inextricably mixed up One of the problems with which we shall be faced after the war is the restoration of damage, and however much the productive resources of the world may have been destroyed by war, a far greater increase in production will be made possible by the development of science and the skill of the individual which is inevitably increased during a war. Then there is the widespread determination that by some means or other we may succeed in increasing the general standard of living not only in backward countries but all over the world. Such a conception of the future and such an effect from the war cannot surely be brought about without a genuine expansionist policy to which reference has already been made. In the 18th and the 19th centuries science was beginning to have more widespread application. It is difficult to believe that what has become recognised as modern production could ever have been made possible without the mechanism of the domestic banking system which provided the credit and finance for that expansionist policy to take place. To my mind, therefore, the very simplicity of the conception of applying in the international sphere benefits which we have found from experience to have worked satisfactorily in the domestic sphere is a conception which makes the Keynes plan very attractive. It is true that there is all the difference in the world between a machine handled by nationals of one country and a machine handled by nationals and institutions of a variety of countries. Nevertheless, the principles are the same, and if only it is found possible to create the same confidence between the nations and those associated with that mechanism as has been found possible in the domestic sphere, I cannot see that there is any serious need for apprehension on that account.

The Chancellor of the Exchequer had something to say about the need to eliminate speculation in exchanges. Anyone who has been associated with the export trade must have realised how essential it is that there should be some degree of continuity in the exchange values if the exporter is to be able to plan ahead and know what he will get for his goods. That cannot be possible if it is open to the speculator to take a view regardless of its effect and to interfere with the general stability of the exchanges. It is not unnatural that any attempt to prevent that, namely, through the control of the movement of capital, should cause some apprehension to be felt at the possibly restrictive measures for ordinary trading work. I cannot believe that it is possible effectively to control the movement of capital unless there are at any rate the means available for regulating the use of exchanges for ordinary trading purposes. In war-time great experience has been obtained of the mechanism of exchange control. It seems to me that the principle that has been found satisfactory in application is that of decentralisation and not attempting to bring every transaction to the scrutiny of some central office. If that principle of decentralisation based on integrity and faith can be applied now surely it would be practicable to apply it equally in peace-time to the general trading considerations that will apply.

Reference has already been made to the new ground that has been broken in the Keynes plan by introducing into the banking system a penalty on an excess of creditor funds. That introduces a feature which has no place in the ordinary domestic system. It seems to me essential that there should be some public recognition, such as is there found, of the obligation of the creditor country to bring itself nearer to the quota or parity—call it what you like—which is inevitable if we are not to stifle the activities of debtor nations and force them to take unsatisfactory self-protective measures.

There is one feature of the Keynes plan which has been but little referred to, if at all, and that is the position which a country, whether it be a debtor or creditor country, will find itself under this plan, not as facing one other creditor or debtor country, but in its relations to all other countries taken together. It is said there will be difficulties of national prestige because of the way in which economic and political considerations overlap. It strikes me there is a far better prospect of being able to bring about remedial measures if a country's position is dealt with in relation to all other countries taken together rather than to one particular country. That should give a better prospect than could ever be found, politically at any rate, by any series of bilateral or multilateral agreements, which appear to be the only alternative.

The only other point I wish to make is this: Were the nations of the world fearful that in a very short time war on a major scale might come about, any scheme such as is here contemplated would be faced with difficulties vastly greater than are inherent in the scheme itself. Therefore, if after this war we may look with a measure of confidence on the absence of war for a considerable time, that would be the most appropriate moment to introduce a scheme of this kind; such a scheme should help to establish mutual confidence—indeed it is indispensable—so that if the effect were to defer still longer a repetition of war, those two considerations would be mutually advantageous. It follows that now is the best time to prepare a scheme for successful application when the war is finished.

I notice that recent speeches have naturally enough gravitated in the direction of considering problems other than those we are supposed to be considering to-day. One hon. Member has pointed out that we are discussing merely the problems and mechanism of currency and exchange, and that we ought to keep to that, but the tone of one or two other speeches has been that we ought to go on to more fundamental questions such as the kind of trade we are to do after the war is over. I think it is only fair to the Keynes plan—and I think the American plan makes the same point—to point out that this question is not considered entirely in isolation. The Keynes plan deals with a number of problems that must be considered alongside this problem of currency mechanism and exchange, and it is important that we should remember this fundamental fact—it is the assumption, I think, on which the Keynes plan is built—that unless nations in the future do determine to trade with one another without introducing the barriers to which we have been accustomed in recent times no plan can hope to work. But we have to recognise that there is a real problem of exchange apart from the problem of trade. It is true that in theory and in practice what we export pays for what we import, but at the same time payments between individual dealers have to be in the form of the, currency they are accustomed to. Americans must be paid in dollars, and we must be paid in pounds, and that, and the fact that we have no international currency, but that each nation has its own specific currency, has given rise to extraordinary difficulties.

The object of the plan is to remove difficulties that are associated with payments in international trade as it is carried on at the present time. For example, we must all agree that it is grossly unfair that a manufacturer in this country who is selling goods to, say, America, has really no idea of the value of what he will be paid for those goods when it has been converted from dollars to pounds. That is the fundamental problem we are discussing. Can we do something to reduce, or to stabilise to some extent, the fluctuations of the foreign exchanges? It is true to say that this country is probably more interested in this problem than is any other country. Reference has already been made to the predominant place that America will inevitably occupy in the economic life of the world in future. I do not think there will be two opinions about that. With her tremendous natural resources, with the opportunities she has had to accumulate gold which, as we have heard from several speakers, is still very much required by nations, and with her productive activity expanding tremendously as the result of the war, just as our own is, it follows that the future as far as economics are concerned probably lies with the great republic of the West, if not also with Russia, which is on the other side of Europe. We are only beginning to realise what the economic potentialities of Russia amount to. They have astounded the world. In view of this and in view of the predominant place that we occupied in international trade before the war, and particularly before the earlier war, it is most important that we should do everything possible to ease the position as far as the future development of international trade by this country is concerned.

There are one or two questions to which I should like to refer. The plan is one for reducing the fluctuations in the international exchange market. In this country we have had some experience of attempting to do that by the Exchange Equalisation Account. It is also important that we should remember that this kind of activity has altered very considerably in recent years. The equalisation used to be carried on by brokers in the City, who were chiefly engaged in buying and selling bills and accommodating merchants from the two countries. That trade has by this time really passed almost completely over to the banks. The way it is done nowadays is that various banks in the financial centres of the world have accumulated considerable balances which they, as dealers, use for this purpose.

It seems to me that the Keynes plan extends the practice of the dealers, that is, of the merchants, as carried on at the present time. If we can get nations to agree to do something to reduce the fluctuations, which are so serious and which are such an impediment to international trade, we shall have taken at any rate the first step, in this time of a common understanding between the nations, to a better relationship in the world of trade in the future. We all recognise that it is only a first step, but it is said that it is the first step that counts. We have realised already that it is not an easy step. There are considerable differences in the two plans, and they were pointed out by an hon. Member on the other side. I hope that the Chancellor and his advisers will proceed to consider and compare the two plans and to evolve out of them, if possible, a system that will relieve the great commercial nations from the unnecessary anxiety that exists at present concerning exchange fluctuations.

I am glad that my hon. Friend the Member for South-East St. Pancras (Sir A. Beit) is in his place, because I want to add my congratulations upon his remarkable speech, which the Committee so much enjoyed. I hope it will be read both at home and abroad as widely as the very interesting exposition with which the Chancellor of the Exchequer opened the Debate. I thought that the hon. Baronet made one small slip, when he suggested that all countries entering the Stabilisation Fund under the American plan would be required to deposit gold and dollars. That is not so. They would be required to deposit a small proportion of gold and the rest in their own local currency and their own Government securities. That would ease the position for them, but I agree with the hon. Baronet in his general criticism of that deposit method. He suggested, as a means of reconciling the two plans, that it would be desirable to withdraw the suggestion from the British plan that the value of bancor could be altered in terms of gold. The Committee ought to consider very carefully before agreeing to that suggestion. I do not see how Britain could accept a proposal like that, unless there were some previous international agreement about the production and supply of gold. That, however, is a subject which your predecessor in the Chair, Major Milner, warned us to keep off.

The hon. Baronet gave the Committee an admirable analysis of the economic aspects of the two plans; I should like to add a few observations on the political side. This is a subject on which not only are the nations of the world closely bound together, but politics and economics are also linked very closely, and it will be no good if we achieve an economic solution that will not win political agreement, or vice versa. The most important feature of both papers is the clear, unequivocal statement that the two plans are provisional and tentative. There have been suggestions in America that that is not the way the American plan should be regarded, and that other nations of the world should look at it as a final, cut-and-dried scheme, on a take-it-or-leave-it basis. It should go on record in this Committee that that was not the view taken by the American authors of the scheme, who said explicitly:
"The provisions of the proposal are in every sense tentative, intended as a basis for discussion and exchange of views."
Exactly the same attitude has been adopted by the British Government towards its scheme. That is the only understanding on which we can make progress—on which all the nations who are interested can make progress—in trying to come closer together on the single problem to which dual solutions are offered.

It is a key matter, on which sovereign Powers have to make up their mind, how much of their national economic sovereignty they are willing to surrender to some international body. That is what this sovereign body, our British Parliament, is discussing to-day. It is one of the hardest things to ask any Parliament or country to agree to—specific surrender of rights of decision. We are all at one in recognising that widely fluctuating exchanges are the enemy of the welfare of the whole world. To avoid them, if we cannot find a satisfactory governor in some metallic instrument, such as gold, we must look for a human governor, an international governor consisting of human beings, to which national sovereign bodies are prepared to delegate some of their functions, in order thus to create an alternative means of controlling exchange fluctuations.

My hon. Friend the Member for East Aberdeen (Mr. Boothby), whose speech held the attention of the whole Committee, suggested that it was premature to embark, at this stage, on an examination of monetary solutions. I disagree with him there. He is perfectly right in pointing out that the movement of goods is the thing that really matters, but I submit that there is not the slightest chance of our achieving any degree of international agreement on tariffs, commercial policies and the like, so long as the nations of the world are exposed to unilateral depreciation of each other's currencies. To see whether we can obtain some safeguards against that, we must discuss, at this early stage, the possibility of international monetary arrangements.

We have to invent a new machine, and it must be one which will necessitate the smallest possible interference with national sovereign rights, if we are ever to establish it. Both the schemes before us interfere with national sovereign rights, but the American scheme seems to involve the greater surrender. The American scheme lays it down that the value of national currencies shall be determined at the outset, not by each nation itself but by the Fund, a radical difference from the British proposal, which is that at the beginning each nation will be free to determine the exchange value of its own currency in terms of bancor. Secondly, the American scheme, in the form of the offer it makes for the continuance of the control of capital transfers, would, it seems to me, render any kind of exchange control impossible. I fail to see that it recognises the insuperable difficulty of achieving any effective means of controlling capital exchange transactions without including a right of control over ordinary commercial exchange transactions. Thirdly, though I do not want to labour the point now, it is true that the American scheme, by its insistence on the consent of four-fifths of the votes, gives much greater power in determining policy to one or two great countries of the world. Every country except one knows that, in every matter for decision coming before the international body, what it wants may be vetoed by the vote of one, and that is a tremendous surrender of sovereignty asked for from every country.

The British plan to a very large degree avoids these obstacles. It also, I submit, renders possible much greater elasticity. Of course, the elasticity of the American plan could be enormously enlarged by an adjustment of the quota system. It might be better to have a less satisfactorily constructed plan, with larger quotas in terms of money, than a more satisfactory plan which, in fact, was going to give a smaller degree of elasticity through overdraft facilities being more restricted. But as the plans stand, in terms of elasticity, the British plan is the winner on both counts. I look at it in this way. In the history of the world we have advanced from the barter of commodities, through the invention of money and markets, to the development of a highly intricate banking system. If, for a moment, we think of national currencies as commodities, it seems to me that the American plan corresponds roughly to the stage of the invention of money and markets to ease the difficulties of barter, whereas the British plan corresponds rather to the invention of banking and the use of the cheque. It carries us farther. It provides all that greater degree of elasticity.

I am not at all sure whether either of the plans includes sufficient safeguards against withdrawal combined with default, and I suggest that that is a matter which should be looked at very carefully by all the nations studying these proposals. My other big difficulty about the British plan, indeed about any plan which is brought forward at this stage, is that we cannot tell when or on what terms, the present enemy countries could or should be brought within it; and so long as large territories of the world are outside an international Currency Union, that necessarily makes it easier, it may indeed make it more tempting, for a single country, annoyed by a decision of the Union, to withdraw and decide to play on the other side. The British plan, however—and this is fundamental—is undoubtedly far kinder to the weaker countries, and that is what the world is going to need in the years immediately following the war. It is kinder in helping their recovery, and it does not require, as the American plan does, the initial surrender of some of their precious assets.

The British plan also recognises, as has been pointed out by several speakers to-day, that the welfare of the world is unattainable if any country or countries pile up credit balances which they do not use. It would be disastrous if these or any monetary plans were thought of in any quarter, as an insurance so sound that it did not matter whether an individual country took all kinds of risks in its own behaviour, and acted in as arbitrary a manner as it cared. No international monetary plan can stand up to that. It has to be said, perfectly plainly, that the greatest single cause of the economic troubles of the 1930's, economic troubles which affected America as bitterly as they affected the rest of the world, was the refusal of the Americans to buy adequately from the rest of the world in exchange for what they wished to sell to the rest of the world. If that attitude persists on the part of America or any other creditor country, nothing can avert the disaster which will overwhelm the world and that country with it. I, for one, cannot believe that that is going to be the attitude of the United States after this war. The wide-mindedness which the American nation has shown towards other countries in the last three years seems to me overwhelming evidence in support of a reasonable belief that it will not. We need not so terribly fear that America is going back to sheer economic narrowness. There is evidence, too, in the American plan itself, because in that plan there are intricate suggestions—better worked out, in a sense, than our suggestions have been—for dealing with the temporary problem of the abnormal balances which certain countries will have accumulated as a result of the war.

We have reached a point where America and Britain can now talk openly about international economic co-operation, where they can talk in terms of joint organisation, not only for international currency, but for other essential needs too, such as the rehabilitation of the weak nations needing relief, international capital lending, international commodity control, and, I would add—because I believe this must come at the very start—an international agency for the collection, the authoritative and speedy collection, of facts and statistics. Much of the trouble between the two wars was that countries were determining their economic behaviour without adequate agreed knowledge of the real facts of the situation for which they were prescribing. If all these various organisations can be brought into being, including an international monetary machine, that, in itself, I submit, will help with regard to one of the points about which the hon. Baronet was troubled. It will help as a safeguard against the risk of individual withdrawal and default, because the sanctions that can be applied against individual defaulters, international sanctions, will be far more powerful, if there is not merely one international body but many international bodies, from most of which the weaker nations will sincerely desire to benefit.

It is not the business of the Committee to examine critically every economic detail of the two plans. We are not economic experts; we would not make a success of it. It is our duty to pass broad judgments, and to consider the political possibilities and difficulties which arise out of planning any international machinery of this kind. I should like a message to go out from this Committee to-day that the British House of Commons welcomes further discussion on international monetary planning, and that it is anxious to smooth rather than to accentuate the economic and political frictions in the way.

When my right hon. Friend the Member for East Edinburgh (Mr. Pethick-Lawrence) followed the Chancellor's most lucid speech, he said that he had never spoken in this House with a greater sense of responsibility, because it fell upon him to make the first unofficial statement on these two proposals. I could not help thinking, as my right hon. Friend proceeded, that it was very fortunate that that responsibility had fallen upon him, because I think his speech, if I may say so, was a most admirable introduction to this Debate. It put the whole of these problems into their right perspective. I agree particularly with him that we must be frank on this matter. It would be a poor service both to the Chancellor and to our American friends if we did not speak with complete frankness. I want myself to make some points very frankly in a moment, but before doing that I want to say that the impression made upon me is that the discussion to-day has tended, if anything, to exaggerate the differences between the two plans. There is another point I would like to mention as a preliminary. I listened with great enjoyment to the speech of my hon. Friend the Member for East Aberdeen (Mr. Boothby), and I entirely agree with him that we must approach these matters in no attitude of subservience or of dependence on others' help. But let us not go too far in what we say to emphasise this. Personally I cannot see how there can possibly be any satisfactory economic set-up for the world which does not include co-operation between the United States of America and the British Commonwealth. We may have to go our own way, but before we do that on any matter let us make every possible effort to reach agreement. I see no difficulty, in the present mood of the United States, about reaching agreement.

Personally, I greatly welcome both proposals, and I would like to say much more than there will be time to say about them. I welcome the brilliant lucidity and ingenuity of the British paper. And there are many points too that I welcome in the American paper, particularly one passage in the introduction:
"The people must know that we at last recognise the fundamental truth that prosperity, like peace, is indivisible."
I venture in that connection to call attention to something that was said by my hon. Friend the Member for South-East St. Pancras (Sir A. Beit). I enjoyed his very lucid speech, but I suggest that he did not do good service by emphasising at the beginning the influence on the two proposals of the "interests" of the two countries. I do not believe that either country has approached this problem or framed its solution with an eye to favouring specially its own interests—whether it be on the questions of voting rights or other matters. I think this question of interests has been wrongly put. No Government of any country can be expected to propose a plan which is not consistent with the interests of that country. But what we have to realise is that our interests all hang together, and that we must not take narrow views about what are our interests. If that is the spirit, we shall have no difficulty in reaching agreement. That is one of the things I think that the world has begun to learn.

I have two other preliminary considerations to raise. First, it is very important that we should not approach this Debate as though we are discussing two rival plans, between which we have to make a choice. What we have got to do is to evolve the best plan taking features from all. I would myself like to see a plan put forward by the governments of the other United Nations. Let us have as many proposals as possible, and try to reach agreement on the best plan. Secondly, we must recognise the limitations of what we are discussing to-day. There can be no successful or useful currency plan which is not based on wide economic understanding and there can he no wide economic understanding which is not based on political understanding. Both papers recognise the limitations. Both plans recognise that, even in the monetary field, this is only one feature of what the American paper describes as the instrumentalities required for dealing with the situation after the war. That paper makes clear that there must be agencies for dealing with long-term capital loans, there must be agencies for dealing with the abnormal situation left at the end of the war, there must be agencies for stabilising raw material prices.

One of the chief points that I want to make is that we cannot possibly commit ourselves to any currency plan, we can enter no union, unless there are satisfactory arrangements under those three major heads. The Union would break down; and it would be worse not to start it at all, than to start and have it fail at once. I do not put that forward as excusing delay, since I think this matter is most urgent. Indeed, it is almost "now or never," if we are to come to any reasonable agreement. I put it forward, on the contrary, as an argument for getting on as quickly as possible with all those other measures. Therefore, I am glad to see that in the American paper a promise is made of an early statement on a plan for international capital loans

Now, when we come to the matters which we have to discuss to-day we must stick to broad points. Much of the ground has already been covered by other speakers. I have found it of value for clear thinking on this matter to distinguish between two separate aspects of the duty of this international institution which it is proposed to set up The first is that of securing reasonable and orderly stability of exchange rates, and the second is that of providing supplies of foreign currency to the member countries that need them, in a way which will lubricate the flow of international trade. These purposes are closely interconnected, but they are two distinct aspects. It has been recognised in most of the speeches to-day that reasonable currency stability is an essential if we are to have full development of international trade. We have to consider how far we are prepared to go to obtain this. Although we are not asked to approve any detailed plan to-day, there are certain principles to which this Committee ought to commit itself, which have, perhaps, been obscured by some of the discussion which has taken place. I should like to have it declared, with no possibility of doubt, that this British Parliament absolutely sets its face against anything like competitive currency depreciation, currency depreciation adopted as a means of securing a temporary, unjustified advantage in international trade. Let us declare our belief in that principle without any possible doubt.

We have to answer another question. As we have lost—and that has been well pointed out by a number of speakers—the automatic regulator which under British guidance worked through the nineteenth century, and as we have to replace it with some personal regulator, and as we have to recognise that we must work together in this, are we prepared to say that we abandon the right to be, ourselves, the sole judge of whether a variation in our exchange rates is justified? That is a question from which we cannot run away. Personally, I agree with what was said by the Home Secretary in a speech on Sunday, that if we talk about international solidarity or international cooperation, and mean those to be something more than nice after-dinner phrases, we have to give an affirmative answer to that question. We must in fact be prepared to accept some judgment other than our own sole judgment as to whether a variation in our exchange rate is justified. But we must be satisfied as to the tribunal.

There we come to one of the important questions in this scheme. I want to say a word about that later, but I must say at this stage that the American plan, so far as one can interpret it in the matter of voting rights and the absolute veto which a one-fifth vote would have and in the possible restriction which that would impose on a country's power to get a variation in its exchange rate, seems to me to be utterly inacceptable. It is indeed very unfortunate that there should have been any discussion of this matter in terms of voting rights or powers of absolute veto. In my own view, if ever we get to the stage of questions having to be decided by majority vote on that international board, that will mean that the scheme will have broken down. Therefore, I hope there will be a further discussion of that question of majority voting and of the way in which these matters are to be regulated.

I do not propose to say anything except a few words about the link with gold. I personally think in much that has been said to-day there has been considerable exaggeration on this matter. I cannot believe that, with the present stocks and production of gold in the world and after all that we have learned in the last 25 years, gold will again be allowed in any country to behave stupidly as a regulator of currency. I am certainly riot afraid of American policy in this matter. If the power to regulate the relation of gold to currency rests with the United States, as it would under their scheme—since it would be the dollar-gold rate which would virtually control the position—I am not afraid since I do not see any prospect of the United States wishing to pursue a contractionist or deflationary policy. Therefore, I think that the fears that have been expressed about the link with gold have been exaggerated.

I want to turn to the second of the main aspects I mentioned—the aspect of this international institution, as a lubricating agency supplying its members' needs for foreign currency. It has been represented that on this matter there are vital differences between the two plans. It is true that the British plan is to be on a credit basis and that overdrafts are allowed, whereas, according to the American plan, countries are allowed to take out nothing which is not covered by what they have put in. Personally I feel that there is considerable value in having to put something in. That may be quite a useful sanction, and to that extent I consider that is some advantage in the American scheme. This does not mean that I want a permanent contractionist scheme. But if one studies the two papers again more carefully, one can find that there is not really such an essential difference as has been represented. The difference rather lies in the focus of attention. The British plan represents rather the ideal plan that would be suitable for a group of nations in the sort of circumstances that will follow this war, whereas the American plan has been considering it rather in the terms of nations A, B, C, D in the actual conditions that will supervene when the war is over. One perhaps tends to be narrow because it is a little too realistic and the other perhaps tends to be unrealistic because it casts its vision forward into conditions which will not be immediately realised. One particular difference illustrates this point. The American plan includes among its funda- mental purposes that there should be machinery for dealing with the abnormal war currency balances, while the British plan merely recognises that as a problem but makes no specific proposals. But the real point which emerges if one studies the two plans carefully—and I want to put this point to the Committee which has not yet been made—is brought out in the important paragraphs dealing with the "transitional arrangements" at the end of the British paper. In paragraphs 41 and 42 it is recognised that the opening of the full credit facilities included in the British plan would, in the conditions which will immediately succeed the war lead to undesirable consequences. It contemplates that for the transitional period—probably at least the first two years after the war—countries shall not be allowed their rights of overdraft, and that the amount of Bancor balances they may be able to get will have to be balanced against gold that they put in or be given as part of special arrangements for international lending on a long-term basis. I put it to the Committee, that if the American plan is regarded rather as a plan covering the transitional arrangements, and if the wider vision in the British plan is adopted as applicable to later conditions when a reasonable measure of stability has been established, that offers a basis for the fitting in of the two plans together.

There is one other word I should like to say about the British plan with its overdraft facilities. I think that Lord Keynes has made an immense contribution in his conception of bringing the fruitful methods of domestic banking into the sphere of international financial relations. But we must not stretch this idea too far. We must not be blinded to realities by the brilliance of the plan. I think there is some departure from reality when, in paragraph 12, the White Paper says that "the analogy with banking is complete." It goes on to say:
"No depositor in a local bank suffers because the balances which he leaves idle are employed to finance the business of someone else."
But the ordinary bank with its thousands of accounts and thousands of depositors is in a very different position from this international Clearing Union, whose accounts will he numbered by tens and where it is pretty clear that there will be one depositor of preponderant importance. Nor is it true to say that the depositor is entirely unconcerned with the way in which a banker utilises his deposits to finance other business. If the bank grants overdrafts to none but uncreditworthy customers, the bank will go bust, and the depositor will lose his money. That is a situation which might conceivably occur in regard to this international Clearing Union. We do no good by ignoring the probability that if such a Union is to be set up and operated in the manner proposed in the British plan, the United States would become the preponderant depositor and would be closely concerned with the manner in which balances which stood to its credit were used. Let us face up to that fact. But let us also hope that the United States will realise that almost any use will be better in their own interests, than to leave their deposits lying idle. Subject to this, I fully realise the value of the conception put forward in the British paper, and the advantage of the "anonymous" or "impersonal" facilities that might be allowed.

Now I want to say a word about the working of the Board. Those of us who have had practical experience in dealing with difficult exchange situations in between the two wars must be very concerned in considering just how this machinery is going to work. I venture to put certain considerations to the Committee. An international board is an extremely cumbersome instrument. There has been put upon the Board, with particular clarity in Section III of the American plan, and also to some extent by implication in the more general provisions of the British plan, a number of duties which really will make it necessary for the Board to take executive decisions from day to day of great complication and of wide economic and political significance. I doubt very much whether an international board can properly perform those functions. What does one suggest? It is not for me now to suggest definite plans, but I want to put this idea to my right hon. Friend. If the International Board—the board of the Clearing Union, or the Fund or whatever you like to call it—comes to be regarded by the world not as a number of men representing their various Governments but as a body of experts who will study every problem in a scientific and objective way so that when a country gets into foreign exchange difficulties there will be a really impartial expert tribunal, which would analyse and diagnose the cause of these difficulties, I believe that that might prove to be a factor of incalculable value in the world. I would like to see a Board assume not so much the character of an executive responsible for complete and widely important decisions but rather the character of a judicial tribunal in relation to the Executive. If its functions are the functions of a judicial authority, I believe that they may become not of less but of much greater value. I fully recognise the difficulty of weaving that idea into the texture of these particular proposals, but I commend it to the attention of the Committee if we want this scheme to be a success.

There are a number of other points that I would like to bring forward, but this is not the time to do it. I welcome the Chancellor's assurance that this will not be the last Debate on the subject, and I think we ought to express our gratitude to him for giving us the chance of discussing the matter at this stage. This is something like a new experiment in democracy. A plan has been put forward for our opinion before it has been settled by the two Governments. That is of the greatest value, and I hope the Chancellor himself will gain something from this Debate. But there are difficulties in getting to close grips with the practical features in a Debate of this kind, and I wonder whether it would be possible to have something like a Joint Select Committee to examine the proposals in greater detail. A Joint Select Committee of both Houses of Parliament might perhaps be an instrument of great value at a certain stage. Finally, I want to impress upon the Committee the urgency of getting on with this matter and of taking advantage of this occasion when the affairs of the United States and ourselves are more than ordinarily mixed together and when our recent military successes have enabled both official and unofficial speakers to testify to a spirit of co-operation and joint action for which there has been no parallel between two Allied countries. This surely is the time to get together with realistic frankness and complete honesty in order to evolve a practical scheme which will benefit not only our two nations, but the whole world.

I propose to make only a short speech on this tech- nical and complicated subject. First of all, I would like to congratulate the Chancellor of the Exchequer on the issue of this White Paper, which I consider to be one of the most important State documents which has ever been issued and one which, in its way, will play a bigger part in the future prosperity of the world which we are hoping for so much and which we all sincerely hope will be realised. We understand that the main author of this White Paper is Lord Keynes. Certainly the diction and phraseology bear the imprint of his handiwork and brainwork, and I should like to congratulate the Chancellor on his judgment and wisdom in having persuaded Lord Keynes some time ago to be one of the economic advisers to the Government. I think it is of great advantage to the country that it should have at its service the fertile and imaginative brain of Lord Keynes. Among world economists his intellectual ability is certainly outstanding.

There are only two aspects of this White Paper on which I want to trouble the Committee for a few minutes. The first point I want to make is to draw attention to the preface to the White Paper, where it says:
"In the field of national activity there are, four main lines of approach. First, the mechanism of currency; second, the framework of commercial policy; third, the orderly conduct of production, distribution and prices of primary products; fourth, investment aid."
It is on the second and third of these points that I want to lay emphasis. It seems to me that the White Paper, like the Beveridge Report, is based on certain assumptions. We know what these assumptions are, the most important of which is not more than a certain degree of unemployment. Similarly, it seems to me that Lord Keynes, or the authors of this White Paper, recognise that this currency plan by itself is not sufficient, that we shall need a framework of commercial policy and the orderly conduct of production, distribution and prices of primary products. I submit that the only satisfactory commercial policy for post-war years will be the recognition that foreign trade in the future will have to be carried out by international agreement on quantitative lines, that is to say, quantitative exchange of products by international agreement. There are certain definite proposals which have been put forward under the name of a world trade alliance, and I hope the Chancellor and his economic advisers will carefully study those proposals, because they amount in their main feature to an extension of the principles which have been adopted and laid clown in the International Wheat Agreement.

I attach most profound importance to that Agreement as a model, but only if it is a model for similar agreements being arrived at with regard to the main products that enter into international trade—and I include not only primary products, but manufactured products. Our troubles of exchange depreciation, tariffs, exchange restrictions and all the rest of it will become unimportant if the future export trade of the world as a whole is carried out by international agreements through the mechanism of production committees, a separate committee for each of the products which are the main products that enter into international trade. The International Wheat Agreement has nearly all the provisions, both immediate and provisional, which are necessary to regulate the future foreign trade of the world.

It is one of the assumptions made by this White Paper of the other measures which will be necessary in addition to the currency measures, but I do not propose to say anything more about it, because we have to realise that we are dealing mainly with the currency side of the post-war proposals. The other aspect I want to emphasise is in the preface of the plan, which says:

"Member States shall agree to accept payments of currency balances due to them from other members by transfer of bancor to their credit in the bank of the Clearing Union."
There is a corollary to that in paragraph to, which says:
"No State is entitled to demand gold from the Union accounts to balance the bancor since such balance is available only for transfer to another clearing account."
I consider those two matters by far the most important of all the proposals laid down in the White Paper. It means that if a creditor country insists on maintaining permanent balances, those balances will really only remain as book-keeping credits in the books of the International Clearing Union. The only way they will be able to cash in those credits or take advantage of them will be by taking either goods or services, because there will be no means of the credit being taken advantage of by the creditor nation, for it is clearly said that they will have to accept payment of balances in their favour by the transfer of corresponding debits in the books of the Clearing Union. In effect that means that if this provision is accepted, every country realises that it can only accept payment for its own exports from the world as a whole by accepting a corresponding amount of imports in goods or services from the world as a whole I think that is the most important difference between the proposals of our own White Paper and the American White plan.

A lot has been said about the differences between the two plans. Some hon. Members have exaggerated them, and some have been inclined to minimise them, but I regard this as an important difference, and I hope if we are going to insist on our own plan on any fundamental points, we shall regard this as the most fundamental, because, in my view, it there is one solvent for the future troubles of the world and one means of obtaining trade prosperity in the world, it will be the recognition as a general rule among nations that in the long run a nation must buy as much as it wants to sell. The one obstacle and stumbling block to the recognition of this general rule is the United States, because of the extra export surplus she has enjoyed now for so many years, but one finds it very difficult to believe that this can be a permanent obstacle to any rational solution of the problem, because it is not a matter of prejudice or of interest. It is actually a fundamental, logical fact that in the long run a country cannot be paid for its exports in any other way than by imports of goods or services. It is true that in the past they have been able to obtain payment temporarily in the form of gold, but what is the good of gold if it is not going to be ultimately used for purchasing goods and services? That fundamental point is recognised fully in the Keynes plan. It is a most important provision. It involves the recognition of this general rule, which is most important for the future prosperity of the world, and I hope the Chancellor, in his negotiations with the United States Government, will lay the strongest emphasis on that part of the Keynes proposals.

There are two ways in which we have to look at these proposals for an improved international monetary mechanism. One is to examine them, to note the differences between them and it may be exaggerate those differences. We can raise up the old bogy about the gold standard and we can produce a lot of fundamental statements which will lead to the final conclusion that we ought not even to consider the American plan. The other way is to look at the proposals from the point of view of finding similarities, bearing in mind that we and the United States have to get together in this matter, in the hope of finding some via media on which both countries can agree. I think the latter method is the more desirable in the national interest.

Both plans will increase the quantum of international trade by increasing the amount of world purchasing power. Both plans make it possible to achieve a balance of international payment at a higher level of production and exchange than would be possible without them and therefore both propose to do something that is beneficent to the world. I have heard the criticism put forward that there ought not to have been two plans, because, by their publication, the two countries only advertise their differences. If only one plan had been put forward, it would have been criticised on all sides and no one would have known in which direction a compromise was finally to be achieved, whereas now we know where the United States stands and we know where this country stands; thus we know that some kind of compromise, if it is achieved, will be found between the two plans. Many speakers have emphasised the essential fact that these two plans have to be given a sense of proportion and that a number of plans will be necessary to rehabilitate the post-war world. A proper commercial world policy and the control of basic imports and exports both in price and quantity have been referred to by my hon. and learned Friend the Member for Bolton (Sir C. Entwistle) and a long-term investment policy has also been mentioned. Therefore, in whatever way we look at these two plans we must realise that neither is intended to be a complete panacea.

When I read them, I tried to put the proposals as I had understood them in some simple form and this is the conclusion that I arrived at. Each plan sets up a shop in which exchange can be bought and sold at fixed rates. In order to do business with the new shop set up under the British plan, you have to be either one of the original founder members or you have to receive a card of invitation. In order to deal with the shop set up under the American plan, you have to pay an entry fee. In either shop, members may buy other members' currencies to the extent of their resources, that is to the extent of their holding of exchange and gold plus something more—and the vital factor about the plans is this "plus-something-more." In respect of the British plan, this "plus-something-more" in the first year is a quarter of the country's quota and in respect of the American plan it is the full quota. Thus there is set up a shop where countries who trade, can obtain an overdraft of a fixed amount and in which the goods that are on sale—foreign exchange—are marked up in plain terms. In the Keynes plan, of course, there is only one quarter of the quota overdraft allowed. In the White plan you can have the full quota in the first year, but each country has to make a contribution of its own currency, or its own securities, or gold, and in respect of gold the least proportion would be 5 per cent.

This proposal—to provide facilities for an overdraft—is extremely valuable whether we find it in the one plan or the other. It does give to the world the ability to finance trade, which, otherwise, might not be done. This is important. I do not think it has been appreciated or brought out in the course of this Debate that normal trade, the ordinary kind of trade which balances, is not necessarily dealt with through either plan. It is true that under the Keynes plan it is desirable that foreign exchange transactions should be centralised through the Clearing Union, but there is nothing in either plan to make it necessary that the total volume of foreign trade should be conducted through either the Clearing Union or the Stabilisation Fund. In other words, these proposals provide means whereby marginal trade or trade which would not otherwise be done can be financed internationally. It provides a means of reaching our objective, which is full exploitation of world resources. The Keynes plan is more expansionist and from that point of view it is much more desirable in the world interest.

I will deal with one or two of the points of each plan. I do not think the methods proposed for fixing the quota are irreconcilable. In the British plan we propose that the quota should be decided by reference to the imports and exports of the various nations. In the United States proposal, it is to be by references to the gold holding, the foreign exchange holdings and the fluctuation of the balance of international payments. As against relating the quota to the total volume of trade, I think there is something to be said for relating the quota to the fluctuations in the amount of the balance of payment because it is those marginal transactions, the extra transactions, which the new monetary institution is intended to finance.

I do not think there is any doubt that the American plan is much too rigid. Twenty per cent, of the votes would give an absolute veto over any modification of the arrangements. I do not agree that the plan puts us back on to the gold standard. If it does I support those speakers who have said that we in this Committee cannot agree to any plan which puts us back on to a fixed gold standard. In respect of the treatment of gold, I observe that on page 7, paragraph 8, of the White plan it is proposed that each member country should agree that it will offer to sell to the fund, all the foreign exchange and gold it acquires in excess of the amount it possessed immediately after joining the Fund. In other words, the White plan proposes that America, which has nine-tenths of the gold should keep her gold, and that all other nations which may become possessed of gold after the plan comes into operation, will have to sell it to the Stabilisation Fund. That seems to me eminently unfair.

Then there is a proposal about the freedom of the control of foreign exchanges by the nations after the war. It has been pointed out by many speakers that if you completely free the control of foreign exchanges, we cannot control the export of capital. We have only to consider what happened in Germany after the last war to realise the grave danger in that. I do not think we should agree to a proposal of that kind. It was held by the hon. Member for South East St. Pancras (Sir A. Beit) that unitas were completely convertible into gold. I do not think that is entirely true. It is only true to the extent that gold is put into the Stabilisation Fund. It is a reasonable expectation that, if you put in gold, in excess of the amount required to cover your quota, you should be able to get back unitas. The reference is on page 9, paragraph 3 of the American plan.

I agree that if you wanted to look at the White proposals in a critical spirit, you might say that the American plan envisages a new kind of régime of monetary Imperialism. I do not think that is either the intention, or the way in which the proposal will work out. The United States has given us magnificent help in the war. There are certain characteristics of the plan to which we should not agree but, on the whole, if people will not read into either plan more than tentative proposals and will not say that mutual agreement on certain points is impossible, then we may find a solution which is agreeable to both countries and is for the benefit of the whole world.

There has been extraordinary unanimity in the Committee upon the aims and objects a these two proposals. All the discussion has taken place on the relative merits of the methods. I wish, however, to raise the question whether the objects of the two proposals are really desirable. When one has authorities like Lord Keynes and the British Treasury united with the American Treasury to say they desire a specific object, it requires a certain amount of temerity to differ from such a massing of authorities. I do, however, want to challenge the whole question whether fixed exchanges are desirable. The Chancellor of the Exchequer referred to reasonably stable exchanges. He referred another time to the relative stability of the exchanges. The hon. Member for Walsall (Sir G. Schuster) referred to reasonable and orderly exchanges. Neither the American nor the British plan proposes relatively stable exchanges, nor reasonably stable exchanges. They propose fixed exchanges which shall only be altered by permission. It is that type of exchange that I regard as of doubtful advantage. The object of our exchange control should not be fixity but, on the contrary, should be of a reasonable stability. A number of Members have spoken as though there were no alternative to fixed exchanges between countries other than complete chaos. That is entirely wrong. We must certainly have a very great amount of control not only of currency but of various economic factors that go to make those enormous swings and changes in the value of currency; but that is not fixity.

In view of the fact that both the American plan and the British plan definitely aim at fixity of the exchanges, I think it is very desirable that we should examine what that will involve. There are three pre-requisites to the possibility of fixed exchanges. The first is that there should be an unvarying ratio between international price levels and international production costs; the second is that there should be an equation of imports and exports on current account, including of course invisible exports; and the third is that so far as capital movements are concerned financial movements should actually represent and equate with material movements. Those three prerequisites, or some intercompensating amalgam of the three, are essentially the basis upon which fixity of exchanges must be based, and fixity of exchanges cannot be achieved otherwise. I put it to the Committee, When can we expect any possibility of these three criteria being fulfilled? Certainly not in the first chaotic period that will follow the war, and how long that chaotic period will last I do not know, and I do not think anybody else knows. I would remind the Committee that 11 years after the last war this country was driven off gold, and 13 years after the last war the great American nation was driven off gold, so one cannot expect even reasonable stability to come very rapidly after the present war. But I assume that sooner or later we shall arrive at stability, and it is during the stable period when fixed exchanges would be possible that I question very seriously whether they would be desirable. The Keynes plan, your American plan, will not and cannot produce fixity of exchanges in the first period of chaos. They can only produce it when we have achieved reasonable stability, and it is with that period of stability that I wish to deal.

If we are to have fixed exchanges, we must have rigid control of exchange dealings. We shall have to have the whole mechanism of the present war-time ex- change control in operation. It means a Government permit for every import and for every export. It means a Government permit for every transmission of cash abroad or every receipt of cash into this country. I hope hon. Members recognise that. It means, moreover, a very rigid postal censorship, because otherwise you cannot prevent leakages of currency. The alternative to a very rigid control of currency is a black market. We had very considerable difficulty in preventing the black market in dollars and sterling even during wartime conditions, when trade was at a minimum and when practically everything was controlled. A return to normal conditions, and to a vastly greater world trade than we had in 1940–41, will mean that to control exchanges in such a way as to avoid black market currencies the mechanism will have to be overwhelming and appallingly cumbersome. Indeed I doubt if you can get rid of the black market in currency. We 'may get rid of the black market in this country, because we have a highly efficient mechanism of exchange, and we may get rid of it in the United States, but the absence of a black market in currency depends upon the efficiency of the financial organisation, and that means that in less efficient countries, and in less scrupulous countries, you are going to create a flourishing black market. It is far more profitable and far more advantageous for a country normally to trade on a currency which is correctly valued than on a currency which is over valued, and that means that the countries which allow a black market, or which cannot prevent a black market, will have considerable advantages in world trade which will be denied to the English manufacturer because of the efficiency of our system in preventing a black market. The black market is going to work against the honest and efficient country every time, and you will not be able to exclude the black market if you have fixed exchanges.

I said one of the three prerequisites of fixed exchanges was a constant ratio between the production costs of the various countries and world prices. What does that mean to labour? I hope hon. Members on this side of the Committee will take account of what it will mean. The prerequisite is a constant ratio between production costs in a country and world prices. That exists only theoretically at any given time. It may average itself out, it must average itself out in the long run, but at any given time it is only approximately true, and when it is approximately true there is a pressure on the exchanges, in fact, the fluctuations in the exchanges take up the variations between your production costs and world prices. But if you are going to have rigid exchanges then the impact of the variations in world prices is transmitted through your rigid exchanges directly on to your production costs. I hope hon. Members on this side will recognise that a major factor in production costs are wages. The impact of varying world prices will be felt upon wages, just as they were felt by the miners' wages in 1926–31 when we went on to the Gold Standard at far too high a rate. Unfortunately prices in the twentieth century have shown a far greater instability than in the nineteenth century, when we were on the Gold Standard, and I do not see any reason why we can look forward to greater stability, or much greater stability, of prices in future than we have had in the past. We are bound to have very great fluctuations in prices, and that means great impacts upon our wage structure. There is another thing which has changed since the nineteenth century, and that is that our wage structure is far more rigid than it was 40 or 50 years ago. I hope that hon. Members realise that we have to accept either fluctuating exchanges or fluctuating wages. Of the two, I prefer that we should have the exchanges fluctuating than to have the continuous disorganisation and trouble of fluctuations in our wages structure.

Hon. Members may say that I have been drawing too black a picture and that although both schemes propose that there should be temporary fixity of rates, there is an escape because any country can go either to the Fund or to the Board, according to whichever scheme is adopted, and ask for permission to reduce the rate of exchange or increase it. That means that our rate of exchange will alter by jumps. The British proposal suggests permission to vary the rate by 5 per cent, within a given period, but after that 5 per cent, any further variation can take place only by permission. I think there is very little question that, were we to adopt either the English or the American scheme, such variations in the exchanges would be rather larger than 5 per cent. We can look forward to rather larger variations in our rates of exchange by permission.

What is going to happen under those circumstances? There will be a very large amount of intelligent anticipation when a rate of exchange is likely to be altered. It will not merely be the people sitting behind the doors of the central authority who will realise that there is international tension and a likelihood of depreciation in some particular exchange; that knowledge will be world-wide. As the pressure grows upon a particular exchange and it becomes more and more patent that depreciation is likely to take place, what will happen? Buyers know that a very large depreciation in the rate of exchange means a large drop in the prices of exports to that country, and nobody will be, willing to buy the goods of that country until the depreciation has taken place. Variations that take place in exchanges can now be dealt with by the forward market, but under the system of fixed currencies no forward market will be possible. We have to face the fact that fixed exchanges, altered by large jerks and jumps which can be foreseen by intelligent anticipation, will involve enormous interference with international trade whenever there is a possibility that these changes are likely to take place.

When a rumour gets about that any country is in difficulties and its currency is bound to depreciate sooner or later, purchasers of that country's goods immediately hold off until the depreciation shall have taken place. Even though the depreciation would not have been necessary under reasonably free exchanges, under the fixed, jerky system of exchange control the depreciation becomes absolutely inevitable. But the time between the anticipatory realisation that there may be a depreciation and the actual depreciation itself, creates a period of severe unemployment in the exporting industries of that country.

There may be theoretical advantages in fixed exchanges, but they are merely theoretical, and the objections and difficulties which will be involved are going to be a far heavier price than any theoretical advantages we can get. I do not want hon. Gentlemen to believe that I am pleading for anarchy. There is a very big difference between a reasonable flexibility of exchange rates and the catastrophic changes which have produced so much trouble in the past. I suggest that exchanges ought to be to world trade something like what a universal joint is in the transmission of power.

If the fiscal position of a country is being revealed in the accounts of the Clearance Union long before it approaches the critical stage, could not the adjustments in its fiscal policy be made long before such a big change in the rate of exchange would be necessary?

What the hon. Member is now suggesting is that the exchanges should be regularly, continuously and freely moved.

Surely if the action is going to be artificial if it is going to be taken by the Clearance Union, it might be a small adjustment long before the position becomes critical?

If every exchange rate is to be changed continuously to keep it in step with the real situation, with real parity, then all the hon. Gentleman is asking for is all that I am asking for, not fixed exchanges, but stable exchanges. I suggest that you cannot get rid of rigidity if a country has to go and ask permission and show reasonable cause for the changing of its exchange if the rate of exchange needing regulation is a 1 per cent, change to get it into step with reality. It will be told by the board, "We cannot be continually chopping and changing rates." The whole point of the Keynes scheme and the other scheme is that there shall be fairly continual fixity. Why not have a system of stable exchanges which will from day to day represent the actual situation? All I am suggesting is that the rigidity of exchanges outlined in the suggestions of the Keynes proposals and the American proposals are likely to produce far more trouble than they would save.

Is the hon. Member prepared to take the risk of reproducing the chaos in the exchanges which we saw after the last war?

I thought I had tried to explain that. I pointed out that you could not get even fixed exchanges until you have produced a very great deal of order and stability into the economic world.

Is not my hon. Friend making this mistake of thinking that you change the temperature of a room by altering the thermometer?

Thermometers are outside the scope of the Debate.

I suggested that no stability of the exchanges is possible until we have got rid of the underlying causes of the vast fluctuations to which the hon. Gentleman referred. I said that I was not dealing with a state of affairs in which the world conditions were so unsuitable as to make exchange stability impossible. I suggested further that when we have the complete economic international stability which makes the fixing of exchanges possible, the exchanges would be so stable that they would not require the fixing which both these schemes propose. You cannot fix exchanges until the condition of the world is such that it really is not necessary to fix exchanges. It is because everyone has accepted without question the whole idea that you must have fixed exchanges that I have challenged the proposals. I suggest that that is a far more realistic attitude than merely to accept those proposals, which when we examine them will, I think, so far as the actual fixing of exchanges is concerned, cost a far higher price than the value of the benefits they will confer.

There are very few matters of public policy which the ordinary man or woman finds it more difficult to understand than questions affecting currency. I have taken an interest in these questions for a very long time, and I agree with my hon. Friend the Member for Northampton (Mr. Summers), who made an interesting speech, that in these realms of thought one is able only partially to understand the problem. One seems to get glimpses of the truth from time to time, and then again the truth is obscured in darkness. Some hon. Members have by their contributions made those glimpses of the truth rather larger, while others have tended to obscure them in greater darkness. It is certainly very helpful to have public discussion and debate on these matters, and I am sure that the Debate to-day, during which we have had many valuable contributions, will prove of great advantage. As well as thanking hon. Members who have spoken to-day, and to some of whose points I should like to refer later, I would like to thank very much those newspapers which in their financial columns have given a good deal of thought and study to this matter in recent weeks. It has been a help to hon. Members to have had some of these matters analysed for them and put clearly in front of them. We are also, of course, greatly indebted to the officials of the American Treasury for the contribution of thought that they have made in their plan, some features of which are certainly attractive. There have been some criticisms of the American plan to-day, but I am sure the Committee will appreciate that it is obviously unsuitable for me to comment on those criticisms.

Many of the problems which have been discussed are, of course, of a highly technical nature, and deal with matters of which few people have experience. There are some problems with which all business men are familiar, but the problem of foreign exchange is an unknown field to many men who have had quite wide experience of business, and these problems are often outside the experience also of men who spend their lives in finance. Even in the City, there are many experienced merchants and bankers, who have not had occasion to give particular thought to the technical problems of foreign exchange. But there are, of course, certain very broad aspects of this matter which we, as Members of Parliament, must study and try to understand if we are properly to fulfil our duties to our constituents.

There are two points which I should like to suggest that hon. Members should bear in mind. In the first place, it is clear, as my right hon. Friend the Chancellor of the Exchequer told us, and as more than one hon. Member has stressed in the course of the Debate, that no monetary mechanism will be of the slightest value in helping goods and services to move freely about the world if, at the same time, nations erect unnecessary barriers to check that movement and flow. That is a fundamental fact, which, I am sure, the Committee appreciate, but it is a fundamental fact which we must keep firmly in mind throughout all the discussions on this matter both to-day and in the future. The second point I should like to make is that while finance is, certainly, rightly described as our servant, rather than our master—and that is a point which has often been stressed by hon. Members opposite—nevertheless we must not forget the fact that money has, as one of its principal functions, that of being a measuring rod of goods and services. That point has also been brought out by more than one hon. Member in contributions to the Debate to-day. Just as it is one of the functions of Governments to see that weights and measures are kept honest, so it is the duty of Governments to see that money is kept honest.

There is the dilemma to which reference has been made between stable prices and stable exchanges. Both are, in themselves, desirable, but in certain circumstances it may be necessary to choose between them. It would be ideal if we could so arrange matters that the dilemma did not arise and if the nations, avoiding both inflation and deflation, were able to maintain reasonably stable price levels and exchanges. I am afraid that the history of Governments in relation to currency is not as encouraging as it might be. From the days of ancient Rome until now, the pages of history are full of examples of behaviour on the part of Governments which cannot really be called creditable. But we must hope for an improvement in this sphere of government as in other spheres, and to this end, it is most desirable that there should be as wide a knowledge and understanding as possible of the main principles which are involved in these matters, even if the technical problems are rather beyond the reach of those of us who are not especially expert in these matters.

The discussions which we have had to-day about the Clearing Union scheme have necessarily been somewhat restricted and limited in their scope, since both these plans exclude from the main discussion the much wider and, in a sense, more important matters, of commercial policy and post-war long-term international investment. Those subjects have been largely excluded from the Debate. Some hon. Members have discussed the difference between the scheme drawn up here and the scheme prepared by officials of the United States Treasury, and I am sure the Committee is most indebted to my hon. Friend the Member for South-East St. Pancras (Sir A. Beit) for his extremely valuable contribution to the Debate and also to the hon. Member for Walsall (Sir G. Schuster) who also made a very constructive speech. Beside these differences being stressed, attention has also been drawn to the similarities, and, as my right hon. Friend the Chancellor of the Exchequer said in opening the Debate, I am quite certain it would be entirely wrong to emphasise the differences. Although the differences, I quite agree, are not unimportant, the two plans are closer to one another than they might at first appear. No one doubts, for example, that both proposals have the same fundamental aim and that both plans have been devised to deal with exactly the same problems, namely, how countries are to settle their balances which are outstanding and arise from their trade with one another and how to increase the purchasing power of those countries which may be short of foreign exchange. Both proposals seek to create an international monetary system which would make international payment as easy as possible in order to encourage intercourse between the nations and multilateral trade.

But it is in their approach to the problems that there are differences, and these differences have been noticed by the Committee. I have no doubt that these differences can be elucidated and in many cases reconciled as a result of further discussion. Let us look at some of the similarities between the two plans. There will be many countries after the war which will have for some years unfavourable balances of payment, and in the absence of some scheme it would seem that those countries would be forced to impose restrictions on their purchases with a view to reaching exact balances of payment, and that would start all over again that vicious spiral of restricting trade, from which we suffered so much before. Both plans recognise that it is not enough to provide means for relieving the needs of deficit countries; there must be some means by which equilibrium can be restored. My right hon. Friend the Chancellor, the hon. Member for East Birkenhead (Mr. Graham White) and others reminded us of our economic failures in the period between the two wars, and it would not be out of place for the Committee to remember that in the period before 1914—which the right hon. Gentleman the Member for East Edinburgh (Mr. Pethick-Lawrence) described as a period when there was benevolent currency despotism on the part of this country—we had in the gold stan- dard an instrument which did succeed very largely in preventing violent fluctuations of the trade cycle and of unemployment. I suggest that a monetary system can very largely be tested by its success in preventing such fluctuations.

We must not think that the gold standard is an age-long principle upon which nations have conducted their trade and industry from time immemorial. In point of fact, this country did not adopt the gold standard until 1816, although I admit that during the previous century we had been gradually slipping on to that standard owing to an error made by one of my right hon. Friend's predecessors, as Master of the Mint, Sir Isaac Newton. Sir Isaac was a member of the same distinguished college as the right hon. Member for East Edinburgh, and in spite of being a great mathematician, he made an error in his calculations which resulted in this country finding itself, before the end of the century, for all practical purposes, on the gold standard. We were, of course, originally a silver and not a gold standard country. It was not until the 13th century that any gold coins were minted here at all, and the sovereign did not make its appearance until the time of the Tudors. In the early part of the Middle Ages there was an international currency. There was an international coin called the besant, issued by the Emperors in Byzantium, and that was one of the interesting survivals of the unity of Christendom. It was not until Constantinople had been sacked and the prestige of that centre somewhat lowered that monarchs in the West decided to start issuing a gold currency, infringing, as he no doubt thought, the sovereign rights of the Emperor. The besant was the coin which had served a purpose which some Members might well have been searching for. It would be interesting to speculate what would have happened if that had been preserved throughout the ages, but we have not time now. There was an attempt in the last century to introduce such a coin, but Napoleon III insisted on having his own face put upon it, so the scheme broke down.

The gold standard meant fixed rates of exchange with other countries on the gold standard. That was a fixity which was absolute and unqualified. That was a feature which we came to dislike, and I want to ask the Committee to consider why it was that we disliked it. First of all, the rates of exchange might be out of relation to the underlying facts. They might be out of relation to money incomes and costs of production in different countries. In our case, for example, in the 1920's there was some reason to think that the £ was over-valued and that that was proving a serious obstacle in our export trade. If a country has a currency which is over-valued, it has sooner or later to choose between two remedies. It has either to reduce the exchange value of the currency or force down the money level of its costs of production by a process of deflation. Under the gold standard the former remedy was not available and the latter only was left, and we learned how extremely disagreeable that process of deflation is. Another reason became apparent in the 1930's. We were pursuing as one of our main instruments a policy of cheap money. It might have been impossible to maintain that policy under the conditions then prevailing if we had still been obliged to maintain a fixed parity of exchange. One of those prevailing conditions was that everyone was perfectly free to put his money abroad if he chose and, when foreign centres offered somewhat higher rates of interest for money than the cheap rates we were trying to maintain, money might have flowed out on a very large and disastrous scale, particularly if those who put their money abroad had been sure that they could bring it back without risking anything on the deal. In other words, absolute fixity of exchange rates, coupled with complete freedom of foreign exchange transactions, might limit unduly our freedom to pursue the financial and monetary policy that trade and industry required.

I am coming to discuss the question of exchange control in a few moments. In both the plans it is realised that it is impossible to have any international system which does not place some obligations and constraints upon the nations which belong to it, although in both schemes every effort has been made to reduce the interference with the freedom of each nation's internal policy.

Some hon. Members, including my right hon. Friend the Member for East Edinburgh, have expressed some anxiety as to whether we shall in effect be tied to gold, and be unable to adjust our ex- change rate if adjustment is necessary, and my hon. Friend the Member for East Aberdeen (Mr. Boothby) made it clear that in his view we never wanted to be tied to gold again. I do not think this idea need exist so far as the British plan is concerned. The essence of the plan is that no change should be made in the exchange rate between countries except under well-defined conditions. Under the British plan, when a country has a debit balance on the books of the Clearing Union exceeding a certain amount it will be entitled to reduce the value of its currency by 5 per cent. without permission and to a larger extent with permission. If the debit balance exceeds one-half the quota, the Clearing Union may, as a condition of further overdraft, call upon it to reduce the value of its currency. On the other hand, if there is a country with a credit balance exceeding one-half its quota, the Clearing Union can recommend that country to permit its currency to appreciate, though the country cannot be compelled to follow the re commendation. My right hon. Friend the Member for East Edinburgh will, perhaps, agree that the marriage with gold, so far as the British plan is concerned, is more in the nature of a companionate marriage than an indisoluble union. There is latitude for change, but it must not be overlooked that the rules will also be applied to other members than ourselves. It is important that we should be protected from the actions of others which might damage us just as much as they should be protected from actions of ours which might damage them.

In spite of all that my hon. Friend the Member for Chesterfield (Mr. Benson) said, surely it is a merit rather than a demerit of the Clearing Union scheme that it aims at a considerable measure of exchange stability and tries to ensure that changes in exchange rates are not made without good reason. I agree with my hon. Friend the Member for West Stirling (Mr. Woodburn) that we must not let the revulsion against the gold standard blind us to the serious disadvantages of exchange fluctuation. International trade cannot prosper in exchange chaos. As the right hon. Gentleman the Member for Carnarvon Boroughs (Mr. Lloyd George) once said, it is like playing billiards on an Atlantic liner. Nor could anything be more dangerous than to treat exchange depreciation as a sort of tonic of which we should take a dose whenever we felt rather out of sorts with our economic life. On that road there really might be a real danger of a disastrous process of competitive exchange depreciation. The problem is to reconcile a reasonable degree of exchange stability with a reasonable degree of flexibility. I ought to make it clear that in this scheme there is no surrender of sovereignty any more than in the making of a commercial treaty. Both are limited in time, and notice can be given to bring the arrangement to an end. Though for practical purposes we may make surrender for a time, there is no surrender of sovereignty.

There are many Other similarities in the two plans, both of which are really devised to remove excessive trade restrictions and obstructions, and both the plans, I think, recognise the need to restrict at any rate the movement of liquid capital. The flight of capital in the period between the two wars was due primarily to international instability, and this can only be overcome fundamentally by creating a stable international situation. It is necessary, however, in a period of international instability, to make provisions of this sort, because there is no doubt whatever that in the period between the two wars large speculative flights of capital, whether due to political anxieties or to the desire to make a profit in disturbed conditions, did increase our difficulties, and after the war some restraints will have to be accepted. In spite of all the difficulties mentioned by my hon. and gallant Friend the Member for North-West Hull (Sir A. Lambert Ward) and by my hon. Friend the Member for Chesterfield, I fear that it is likely that we shall have to control foreign exchange transactions for some time after the war to ensure that our resources are devoted primarily to imports which this country principally needs, and it is not impossible that such control may have to extend to speculative movements of capital for an even longer period.

The British scheme has three or four main features. First of all, the countries agree to pass their payments of international balances through the Clearing Union. Secondly, there should be a unit of account to which the par value of these other exchanges is related. Thirdly, the rates of exchange have to be fixed and unfixed by agreement. Fourthly, each coun- try is provided with some resources of foreign exchange to enable it to import goods from those countries of whose currencies it has not a supply. Criticism has been offered here to-day, and also in America and in the Press, of the proposal in the Clearing Union plan to make available unsecured overdrafts to deficit countries. Possibly these initial facilities should rather be regarded, as credits, for the idea of unsecured overdrafts may be an invitation to abuse of the facilities. I think it may be worth further consideration whether some form of security for these initial credits is practicable without imposing undue restrictions upon the value of these facilities. In the post-war period there is no doubt that some elbow room will be needed, and if we are to get trade moving again, we shall have to find some means of providing that elbow room. No scheme which aims at reviving world trade can avoid the necessity of some element of risk. These parts of the scheme will undoubtedly have to be examined very carefully by the experts, and I am certain that due note will be taken by them of the valuable contributions which have been made in this Committee to the problem we are discussing, and I think that for the time being we may be well advised to leave these matters in their care, well knowing that the best brains here, in America, and among the United Nations will be devoted to that task.

Much will depend for the success of this scheme upon the skill and integrity of the central monetary authorities of the countries concerned, but we can approach this matter in a spirit of hopefulness and confidence that those who have suffered so much from the errors and follies of the past will have learned something from their experience, and that they will be prepared to do everything in their power to make the scheme a success.

In spite of all the criticisms that have been offered—and so far as detail goes I am prepared to offer as many criticisms of both plans as is any other hon. Member—I am convinced that some international mechanism is necessary for the future of the world and that unless we take our courage in both hands and determine to build up some such system, the future which faces us will be very grim. As has already been stressed in this Debate, we are discussing to-day only the machinery; much bigger issues underlie all these problems. The time will come when we shall have to discuss those issues, but without a good, sound, financial machine, the best laid plans will go wrong. We need a sound machine, and if we can build one, let us do so. Let us go forward therefore with hope and confidence and try to build up some system, if we can, which combines the wisdom of the ages with the greater technical knowledge with which our experts have been able to equip themselves. Perchance this is
"a tide in the affairs of men
Which, taken at the flood, leads on to fortune."

Motion made, and Question, "That the Chairman do report Progress, and ask leave to sit again," [Major Sir James Edmondson] put, and agreed to.

Committee report Progress; to sit again upon the next Sitting Day.